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February 28, 2012 at 16:33

Letter to Prime Minister of the Russian Federation Vladimir Putin

To: Prime Minister of the Russian Federation,

Candidate for President of the Russian Federation,

Leader of the All-Russia People’s Front

Vladimir Putin

 

Dear Mr Putin,

On 19 December last year, addressing a meeting at the Sayano-Shushenskaya Hydroelectric Power Station devoted to development of the power industry, you said: “If we want to have a normal investment climate in the country, we should make it impossible to implement offshore schemes. We cannot tolerate diversion of financial resources from sectors of the economy through front firms. It is time to put an end to the ‘offshore’ legacy of the wild privatisation, otherwise there can be no question of any business climate in the country and any confidence in us.” You gave all the state-owned companies two months to check on the existence of links with offshore or affiliated organisations. “I instruct the Energy Ministry, the Ministry for Economic Development, the industrial ministries and infrastructure companies – Gazprom, Transneft, Russian Railways, Sovkomflot, Vneshekonombank, Vneshtorgbank, Rosatom and Sberbank to report on progress within two months”, you said. You elaborated your ideas about combating corruption in the public sector of the economy in a programme article in the newspaper Kommersant.

The deadline you set for conducting the audit expired on 19 February. During this period, large-scale violations have been revealed for which a more appropriate name would be embezzlement and theft of property entrusted to “competent managers.” The natural requirements concerning income declaration, disclosure of affiliation and links of public sector partners predictably caused a storm of indignation. It came to absurd lengths: VTB, Rosselkhozbank, Russian Railways, Deposit Insurance Agency and certain other state organisations tried to establish “a common front” against your initiatives, arguing that they would paralyse the economy, undermine the business climate, etc.

A search conducted recently in a state-owned bank and the Russian Government’s firm stand temporarily cooled the heads of the “state merchants.” But one should not entertain any illusions: we are talking about thousands of people who, over the years, have grabbed hundreds of billions of dollars, laundering them and hiding them abroad. These people have enjoyed the services of “werewolves in uniforms” (corrupt law enforcers), the numerous Kaganskys, Glukhovs and Khorevs, thousands of lawyers all over the world, kryshas (a word used in the Berezovsky versus Abramovich trial that has become part of the international lexicon, rather like sputnik in its time) offered by foreign governments and “safe havens” in offshore jurisdictions. Government bureaucrats naively believe they can easily hide themselves and their stolen billions abroad by gaining asylum or using the services of the most expensive lawyers.

One striking example is the recent sentence passed by a London court on the fraudulent banker Mukhtar Ablyazov (who stole more than $6 billion from the AMT and BTA banks in Kazakhstan and Russia). Almost two years’ imprisonment – and not over the charges brought by Kazakhstan, but for lying to the court under oath about his assets after being granted political refugee status. Ablyazov could think of nothing better than to flee from Britain and his fate now appears dim (he can now hope to find refuge only in the Latin American selva, where drug lords like Joaquin Guzman are hiding).

It is curious that the more he has stolen, the more readily the fraudster screams about “the bloody regime” and “illegal expropriation of wealth accumulated by hard work.” These charges were recently made in an interview with Andrei Borodin, former President of the Bank of Moscow. VTB suspects him of stealing at least 150–200 billion roubles. The Central Bank of the Russian Federation and the law enforcers are watching developments from the sidelines. Borodin, meanwhile, is using the media to accuse the “Medvedev regime” of “seizing his business in a raid.” Borodin has the support not only of former mayor Luzhkov, who was part of the fraud, but, surprisingly, of the management of the Deposit Insurance Agency.

Dubious merchants who have fled to Britain and corrupt officials are using Rupert Murdoch’s newspapers to create “international anti-corruption committees to investigate Putin’s activities.” Boris Berezovsky, a well-known “fighter against the regime” could not leave that topic alone. He is setting up Property Rights Watch, by analogy with Human Rights Watch. Gangster-banker-MP Egiazaryan, who fled to the USA after ruining several Russian banks (Mosnatsbank, Unicombank), stealing the money of MAPO MiG and laundering about $2 billion through Louis d’Or Bank (Barbados), has proclaimed himself “a fighter against the regime” and even has his own blog on the Ekho Moskvy radio station site. One wonders why Bernard Madoff, who got a 140 year sentence, has not yet joined these “committees.” He too could have declared that he was investigating “the corrupt Obama regime” (subprime mortgages do reek of a dodgy scheme).

The outcome of the court proceedings on extradition of Russian citizen Antonov to Lithuania, where several hundred million euros “disappeared” from his bank Snoras with the participation of Mr Polonsky, sets a precedent similar to the Ablyazov verdict. Antonov claims that “the dictatorial Lithuanian regime” illegally deprived him of his business. The EU authorities see this as fraud.

Prior to Lithuania, Antonov “distinguished himself” in dealing with Akademkhimbank, Conversbank, Investbank and other banks in Russia. But bogus bankruptcy does not seem to worry anyone here. The Central Bank of Russia, following the murder of Andrei Kozlov, is either afraid “to interfere in a disputable case” or there are some more mundane considerations that led to “a supervisory error” worth trillions of roubles. Meanwhile, just yesterday, we read in Kommersant about another money-laundering bank, Welcome Bank, where the CB “came” too late. Alas, so far 130 auditors spend six months every year at my NRBank, a profitable bank with an H-1 (tier one capital requirement norm) of 35, almost the best in the world, where there has been no sign of any laundering since its inception twenty years ago.

I am convinced that, in the next few years, a solution will be found to the problem of global corruption on the basis of international law. The provisions of the law will be improved. We hope that a single EU body with serious powers will be set up, that corruption will be equated to apartheid and human rights violations. Perhaps NATO’s political wing, with obligatory Russian participation, will take up this issue.

Would it not have been better to prosecute the illegal financial deals by dictatorial regimes rather than bomb Libya? All the current fragmentary initiatives and efforts (the G20 anti-corruption group, the work by the OECD and its Convention, the work of the UN, IMF, the World Bank, the US Administration’s Anti-Kleptocracy Initiative, the fight of the US Justice Department against bribery overseas, FATF, etc.) should be brought together and coordinated. Offshore jurisdictions should be banned. Lawyers who are nothing loath to earn some dirty money during compliance procedures will be brought to account for receiving fees for their services from illegal proceeds. Foreign politicians and courts will learn how to tell a crook from a prisoner of conscience, even if it is only an entrepreneur’s conscience.

Global corruption is the highest form of apartheid, as it deprives entire nations and peoples of a future. In fact, nothing is being done to fight corruption. The cases of former Ukrainian Prime Minister Lazarenko and ex-president of Nigeria Abacha are exceptions to the rule. The people of Ukraine did not get any of the stolen money and the people of Nigeria got only part of it. Real international measures are needed, as I recently wrote in Novaya Gazeta and The Guardian, and my son Yevgeny wrote in The Sunday Times. Obviously the phenomenon is not of Russian provenance; all our “dirty” money is securely “parked” in offshore jurisdictions that were not created by Russia. An army of special lawyers and bankers supervises and protects at least $5–6 trillion (the world GDP is about $50 trillion) illegally appropriated in South-East Asia, Africa, the USA, Latin America, Europe and Russia. That mine planted beneath the world financial system is far more dangerous than Greek bonds. The leaders of Western Europe and the USA and the Basel regulators know virtually nothing about this money, as became clear to me during meetings on this topic. What I am writing about here is terra incognita for our Central Bank.

If you have set the task of bringing back the money stolen and laundered abroad, we are talking about more than $500 billion. It is not hard to prove the validity of most of that estimate, although some government experts disagree with us. If the Russian Government, as the legitimate representative of the Russian people, acts as the plaintiff, all the trials aimed at bringing back the money will be won. Journalists know the main facts, accounts, jurisdictions, lawyers, physical and legal entities, the tasks of investigations and even the rates charged for legal procedures. It is still unclear to which Russian law-enforcement body this information should be submitted. It has to be a structure that does not assist these corrupt individuals and finding such an organisation today is a tall order.

It is clear why the FSB director has ordered his officers to divest themselves of property abroad: “counter-intelligence” men from the K directorate of the FCB Economic Security Unit were seconded to virtually all fly-by-night and laundering banks whence trillions of stolen roubles flowed out of the country (Sodbusinessbank, Neftyanoi Bank, Rossiysky Capital Bank, Mirabank, Brizbank, Universalny Bank Sberezheniy, Mezhprombank, the banks of Matvei Urin, the Bank of Moscow, VTB, Rosselkhozbank, VEFK, Svyazbank, Elektronika Bank, Globex Bank and others). At just one élite place in Montenegro, we discovered three colonels and generals hiding behind their relatives or front men. Let me stress that the Russian Central Bank turned a blind eye to these massive embezzlement cases, even though all these hundreds of billions of dollars had left the country through banks, with some CB employees as accomplices.

As State Duma deputy, I was investigating a fraud case at the state-owned Financial Leasing Company, from which 15 billion roubles had been stolen. It was a rare case, with criminal charges brought against the culprits, who were convicted. Some people disappeared and the ring-leaders were killed by a hired assassin in the autumn of 2011. Dozens of security officers provided cover (kryshas) for these frauds, as we wrote in 2006–2010. The money, as always, has not been returned. Some has been laundered in Germany through purchase of shipyards (as “businessman” Yusufov and the German Government and Chancellor Merkel ought to know). This is a very typical and not a particularly outrageous instance of corruption. The fraudsters from the Financial Leasing Company were never audited in 2001–2007, when they received 12 billion roubles of government money. They easily proved the legitimacy of everything they did: the repair of an office that cost 11 million euros, hundreds of Vertu telephones, diamonds, Bentleys, etc. bought with a corporate card (hospitality expenses) for tens of millions of euros. They paid a world star $1 million in a state company’s money for a concert in Monaco during the birthday party of the state company’s CEO. But who would have dared to probe them, considering they had done the rounds of the FSB, the Ministry for Economic Development, the Ministry of Industry and Trade, the Transport Ministry, the Accounts Chamber, etc. giving bribes? No affiliations or links – formally the money was siphoned off through independent legal entities.

Take an ordinary state-owned bank. Real estate, yachts, VIP jets of the CEOs are on the books of front offshore firms or front individuals. Billions of dollars have been stolen through kickbacks from borrowers. For example, one Fyodor Khoroshilov, a borrower who is hiding in Britain, claims that he has the right not to return the $1.3 billion because he gave a $250,000 “backhander” to a firm registered in the name of a driver of one of the bank’s vice-presidents. Similar arguments are advanced abroad by the “banker” Pugachov, who failed to pay back $2.4 billion to VTB. We are prepared to provide a document explaining how money is stolen from state banks and companies – something that is not on your campaign’s “radar.”

There are hundreds of outrageous situations of deliberately bankrupted banks, such as Pugachov’s Mezhprombank, Urin’s “laundries,” Romanov’s Elektronika Bank or Ivashchenko’s Rossiysky Capital bank. Money has been stolen under the “supervision” of the Central Bank, at least trillions of roubles and no affiliations. I have never managed to persuade the FSB to help recover the 6 billion roubles stolen from Rossiysky Capital bank. They just collected money from legal entities and individuals, spirited it abroad, hid, laundered and are now sailing on their yachts along the Cote d’Azure in sight of their villas, asking “What have we done wrong?”

Another example is Rosukrenergo. For a number of years, it acted as an intermediary selling our gas to Europe. Why was there a need for an intermediary if gas is pumped along Gazprom’s pipeline (there is no Turkmenian gas because Gazprom buys out the whole volume) into the Naftogaz pipeline? The answer is clear: because the 50% of Rosukrenergo shares that belong to the “Ukrainian side” are really owned by a group of oligarchs and bureaucrats (Firtash, Levochkin and Co.) who have “earned” several billion dollars by “sitting on the pipeline.” With this money, they easily paralysed my hotel business in Ukraine, hoping to prevent an investigation by means of physical threats.

Regarding searches at a certain state bank in January. A trifling sum of about $20 million to finance a “timber” project in Krasnoyarsk. Local officials, who later moved to the bank, “spent” the money on expert scrutiny of the project, transferring it offshore. Instead of the experts’ statement for the Siberian taiga forests, they substituted a statement…on the Amazon tropical forests in Brazil, paid for by the Canadians. We at Novaya Gazeta do not investigate such trifles. Given the scale of corruption in the government sector, the amount involved was “peanuts.” To find real embezzlement at a bank one has to look elsewhere. For instance, when Globex Bank was being rehabilitated, 40 out of the 90 billion roubles owned by the state on Cyprus were lost, only to surface in the shape of real estate and in private accounts in Switzerland, London, Italy, Montenegro, etc. Needless to say, the main accusations about investigating this simple story were levelled at me for recovering 8 billion roubles in rehabilitation money six months later, in the spring of 2009. The state bailout money is under the supervision of the notorious “credit and financial counter-intelligence.”

You would agree, wouldn’t you, that it is possible and necessary to recover for the budget more than $500 million through concerted international efforts? For example, by analogy with the case of “the people of Nigeria versus Ex-President Abacha”, the first step might be a lawsuit by the Russian state against Berezovsky and Abramovich, claiming illegal proceeds from Sibneft: they admitted in the law court that they did not pay for that asset. They confessed to crimes many times more serious than those involved in the “YUKOS case.” Former Prosecutor General Skuratov spoke about it in a recent interview. The Russian state’s support for such a lawsuit (which has been prepared) would be an important step. The Russian sovereign is the legitimate representative of the Russian people abroad.

The most logical way for the state to fight the corruption octopus would be to introduce the institution of independent special prosecutors and to initiate parliamentary inquests (the first one might be into the “Magnitsky case”). You have said the law needed reworking, so let us add the institution of special prosecutors. Use can be made of the experience of the United States (a memorandum is enclosed).

Novaya Gazeta regularly publishes investigations on this topic. Being a newspaper publisher, I am prepared to give up business altogether in order to combat corruption, including at the international level. Believe me, I could be very helpful in these future efforts.

 

Yours truly,

Member of the All-Russia People’s Front,

Alexander Lebedev

D.Sc. (Econ.)

Tags: National reserve bank, Novaya Gazeta, Putin

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