Normally the red-brick walls of the Kremlin are impregnable, especially when it comes to intimacies between big government and big business, more than in Wall Street or the City of London. Not so in this case. What Kommersant offered its readers was a rare X-ray picture of the workings of power in today’s Russia, a juicy story with an ominous outcome.
Siloviki and vacuum cleaners
The man to spill the beans was Oleg Shvartsman, and the fact that he gave the interview and survived its shocking frankness – at least so far – meant either that he was not taken seriously, the whole thing regarded as a hoax, or a fantasy perhaps, or, much more likely, that he had high-placed backers who wanted to expose practices that are compromising to the people in power. Shvartsman immediately retracted, mumbling the usual ‘taken out of context’, but knowledgeable people around Moscow like Anatoly Chubais stated, on the record, that everything Shvartsman had said was true. Everyone was left wondering what the real story was.
What happened was a bombshell fired in the middle of pre-election uncertainty. Shvartsman, head of a holding in the venture capital business Finansgroup, was talking in the interview about ‘reprivatization’ – i.e. undoing the privatizations of the 1990s – and the way that high-placed Kremlin personalities would profit from the process. ‘Investments are channelled through a special project called Venture Ru. That is our own. We are providing the biggest pipeline to channel capital into the regions…. Moreover, we have acquired a foothold in the Ministry for Science – unofficially of course. This concerns approximately 4000 projects. Whatever moves in the market or does not move we try to integrate in Venture Ru. There is a real chance to attract foreign investors; our complete website is available in English.’
Shvartsman was unequivocally proud of what he was doing. ‘I am president of Finansgroup. We have USD 3.2 billion under administration. I am not involved in operational management. What I do is strategic planning, policies for society as a whole.’ So far so good. What followed was more contentious: ‘We are closely connected to the structures of political power, including some political characters, and we administer their assets. We are also linked to the presidential administration, with its security structures. We own large assets in oil resources. I am president of a company called Russian Oil Group. There are more of the same calibre, like Russian Diamond Economics and Russian Machine Tool Technologies. The holding Russian Business Group is a very serious structure. As far as private participation is concerned, a lot is offshore, via Cyprus etc…. The holders of power are not involved, but their family members, members of the administration. They are FSB people, people from internal intelligence.’
Kommersant asked for more details about the political involvement, and Shvartsman obliged by naming names – a dangerous and most unusual thing to do: ‘There is an organization by the name of Union for Social Justice in Russia. I personally had a hand in setting it up, in administration and finance. It was created in 2004 when Putin advised that not only the state but also big business should carry some responsibility. After that, our colleagues from the FSB decided to use this organization for going after all the Khodorkovskys. Patrons are all the power ministries: Defence, Home Affairs, Emergencies etc. It turned out, however, that it did not work properly. Each and every oligarch had his special relationship with this or that power structure. So we tried another path. The new concept means that a partnership is being set up with companies under scrutiny. We planned various cooperations. That is how Russian Oil Group came into being – the result of an alliance between Lukoil, TNK and Rosneft. We bought parts of the smaller subsidiaries of those companies. They ceded part of their income to us.’
Kommersant wanted to know more about the future, and Shvartsman’s answer was even more revealing: ‘At the moment we are developing a structure to be called Social Investment. It will soon be a state corporation. The concept was drawn up by us, the Russian Civil Service Academy and the Russian Economic Academy. The concept could be called “velvet reprivatization”. That we do in the interest of Rosobornexport.’ Everybody in Moscow, of course, knows the name of the Russian holding for weapons exports. Shvartsman went on to explain: ‘This is a market-compatible form of taking over strategic assets throughout the regions. The goal is to stop the faulty mechanisms of tax evasion. Pensions for civil servants throughout the regions should be paid out on time.’
But the journalists from Kommersant asked: how does it all work in practice? The answer made it round the world and became known as the vacuum-cleaner method: ‘It works like a vacuum cleaner that sucks up the assets of companies into a structure which soon turns into a state corporation. Those assets are then passed on to the professional leaders. The measures applied are both voluntary and mandatory. People understand which institutions we come from. This is no expropriation, as in the Yukos case. Our senior comrades put things right whenever conflict occurs, but people are compensated, generously, even if it is at the low end of the market price. This is today’s guideline – consolidation of assets in the hands of the state. In all of this, the state helps us. Our employees are former operatives from the intelligence services, 600,000 all over the country. It is through those relationships that we can drive out the power of disloyal entrepreneurs. There is another preventative structure looking into the problem of debts that are not being serviced. This one is about to become one of the most powerful state structures.’ And who, the journalists wanted to know, had given Shvartsman those instructions? The answer was short and simple: ‘The party. Today it is being led by the siloviki, represented by Igor Sechin. There is a real problem: 600,000 people doing nothing and being corrupt. Our measures give them something to do.’
Sechin? For the outside world something of a dark horse. On the Kremlin website he was listed as the man over whose desk all the laws of the Federation and all the president’s decrees had to pass. Moreover, he was also responsible for all intelligence briefs; this was certainly not a man to short-change.
Shvartsman’s activities, Kommersant suggested, were much broader than normal, far beyond a classic venture-capital fund. He obliged by saying that: ‘Venture capital for us is petty change, not to be taken too seriously. Behind this there is a bigger issue lurking. The state has the duty to develop new sectors and turn Russia from an exporter of resources into a progressive and innovative big power.’ And would he report directly to Sechin? ‘There are others, such as Varennikov, member of the state Duma, chairman of the union of heroes of Russia. For us, he is a link to Sechin. He fully supports our idea of reprivatization.’
Muscovites were not alone in wondering, after Shvartsman had opened a small window on to the inner workings of the Kremlin administration, what it all meant. Was Shvartsman trying to commit suicide? Or was he doing somebody else’s bidding? The answer came three weeks later when, suddenly, Sechin went on holiday, and rumour had it that he had fallen into disgrace. However, after a while, he resumed his responsibilities. One of the most powerful movers and shakers and a long time adviser to Putin from St Petersburg KGB days, Sechin showed an unusual ability to survive the power play of FSB factions. In 2008 he joined Putin in Moscow’s White House. The comment by Anna Politkovskaya, murdered on 7 October 2006, sums up what happened: ‘In Russia a great deal is being played out behind the scenes; many people wander around with a bad conscience.’