Inside Russia, the Magnitsky case changed little. The Kremlin’s failure to act against those responsible for Magnitsky’s death was a signal to foreign businesses that they would not be treated differently from domestic firms. Kowtowing to the authorities, paying kickbacks and bribes, would remain the cost of doing business there. Entrepreneurs have continued to be targeted and cases of reiderstvo are now estimated to account for one in seven of all business takeovers, involving funds in the tens of billions of dollars.
The reiderstvo pandemic began almost as soon as Putin came to power in 2000, when the Siloviki were given free rein to carve up Russia’s strategic assets and share the proceeds between themselves. Their first targets were the industries that had been privatised in the previous decade, which they picked off one by one. As scions of the security forces, the Siloviki held sway over the key state institutions, including the tax authorities, law enforcement and judiciary, fashioning them into a biddable machine that they deployed to plunder their hapless victims.
Under Putin, reiderstvo itself became a business, with specialist companies offering professional analyses of potential targets, teams of bent lawyers ready to rubber stamp the theft and detachments of corrupt FSB operatives to carry out the physical seizure. The Moscow magazine Ogoniok even produced a standard price list for the services on offer, ranging from $1,500 per day to tap a mobile phone to $20,000 for surveillance of the target enterprise, while suborning the police and Prosecutor’s Office costs between $30,000 and $60,000.
Because speed is of the essence, the raiders usually arrive in force, overwhelming the company’s security men and intimidating employees with threats of violence. The owners are either removed from the scene or bound and gagged and held in a storeroom. The police are then called, by which time the new ‘owner’ has his feet under the desk, armed with fraudulent company papers and forged share registers. If victims appeal to the courts, they invariably discover that the judge has been bribed by the raiders and consequently refuses to hear their case.
Just as in some third world countries, the law in Russia can be hired as a tool for profit. Judges can be bought; courts are not independent of the will of their political masters; the judiciary knows full well that its judgements must conform to the wishes of the Kremlin. Opposition activists, including Alexei Navalny, who have tried to pursue cases of official corruption through legal channels have been uniformly rebuffed. In the single instance when a court did agree to consider a lawsuit alleging financial impropriety by the president, the Kremlin moved swiftly to shut the procedure down. Judge Tatyana Leskina of the Saratov Court of Arbitration received a motion in April 2016 calling for Vladimir Putin to be tried as ‘an enemy of the state, due to his plunder of Russia and impoverishment of the Russian people’. When she imprudently agreed to hear the case, Leskina was fired from her position and her decision quashed on the grounds that the courts have no right to interfere with the activities of the president.
The constitutional immunity from prosecution that Putin enjoys has facilitated his acquisition of the fabulous levels of wealth referred to by William Browder and his gracious distribution of largesse to his friends and family. Forbes magazine has published an annual list of those who benefit most from Putin’s patronage, a remarkable number of whom have turned out to be his own relatives and childhood chums. Arkady Rotenberg, Putin’s judo partner, figured in every edition of Forbes’s ‘Kings of State Contracts’ roster from the year it first appeared, receiving annual orders from the Kremlin worth over $7 billion for his engineering and construction companies. Another fixture on the list, Kirill Shamalov, improbably became deputy CEO of SIBUR at the age of 30. The petrochemical conglomerate was the recipient of multibillion-dollar state contracts. Shamalov’s own company, Yauza 12, was reported in the media to have received a $1 billion loan from the state-backed Gazprombank (where his brother Yury happens to be the deputy chairman), which he used to buy 17 per cent of SIBUR from Putin’s old pal Gennady Timchenko. It was perhaps no coincidence that Kirill Shamalov was Putin’s son-in-law, married to his second daughter, Katerina; or that when relations with the president’s daughter faltered, he was forced to sell out to Leonid Mikhelson. Both Timchenko and Mikhelson also feature prominently on Forbes’s ‘Kings of State Contracts’ list. Helping to keep things in-house, Katerina herself, having achieved some success in the little-known discipline of acrobatic rock ’n’ roll, was appointed to head a $1.7 billion publicly funded project to build a new science hub at Moscow State University. Arkady Rotenberg’s son, Igor, whose assets have included the drilling company Gazprom Bureniye and power generation company TEK Mosenergo, has also powered his way up the Forbes list, underlining the extent to which people close to Putin now run Russia’s key industries and are passing down their wealth to sons and daughters.
Putin and his cronies have acquired a fondness for building themselves luxury residences – palaces, according to some reports – a trend that has been exposed and lampooned by Alexei Navalny’s Anti-Corruption Foundation (FBK). In January 2021, Navalny released a video titled Putin’s Palace: The World’s Biggest Bribe, which broke all records for social media views in Russia. The film showed footage of an opulent coastal property near the Black Sea resort of Gelendzhik that has been built for Putin by the grateful recipients of his state-funded business deals. According to Navalny, $1.35 billion of illicit funds went into the construction of the palace, which extends to more than 17,000 square metres, making it the biggest private residence in Russia. Putin can enjoy the services of a private port, a vineyard, a chapel, a casino, an indoor hockey rink and toilet brushes costing $850 each. Among those reported to have funded the president’s gift was Nikolai Shamalov, who worked with Putin during his time in the St Petersburg mayor’s administration in the 1990s and who had benefited from lucrative Kremlin contracts following Moscow’s annexation of Crimea. Nikolai also happens to be the father of Kirill, who married Putin’s daughter.
When other members of Putin’s inner circle, including Dmitry Medvedev, State Security Council chief Nikolai Patrushev, former Russian Railways boss Vladimir Yakunin and even Putin’s press secretary Dmitry Peskov, were all revealed to live in multimillion-dollar homes, the response was swift and indicative: Putin decreed that property ownership records would henceforth become classified information, no longer available to the general public. ‘They want to hide the truth about their homes and yachts,’ declared Alexei Navalny, ‘but our investigations will continue – we can still take photographs…’
Navalny’s videos of the luxury lifestyles of the Kremlin elite hit a national nerve. While Putin and co were getting ever richer, the Russian economy was going from bad to worse. Early in his reign, Putin benefited from high prices for Russia’s oil and gas, boosting GDP and lifting living standards. But, instead of using the breathing space to diversify the economy and develop other streams of sustainable revenue, the Kremlin marched blindly on towards the precipice. When global energy prices collapsed in 2014, Russia slid inexorably into recession. Putin’s response was to annex Crimea, a manoeuvre that succeeded in shoring up his domestic poll numbers, but brought Western sanctions and a further, inevitable decline in national prosperity. Putin has stifled market competition by shrinking the private sector and bringing more and more of the economy into the hands of the state or, to be more precise, into the hands of his inner circle. Since 2000, the share of GDP controlled by state-owned (and crony-controlled) firms has risen from 35 per cent to 70 per cent, a deadening influence that has reduced enterprise and innovation. With the exception of the arms industry, Russian goods have become dishearteningly uncompetitive on the world market; technological research and development have dwindled and the much-touted creation of a Russian Silicon Valley at Skolkovo, near Moscow, ended in fiasco. Putin’s promise of 25 million new jobs in the IT field was a farce. ‘Russia,’ goes one popular joke from Soviet times, ‘now boasts of producing the biggest nanochips in the world.’ The Kremlin has subsequently dropped any serious attempt to modernise the economy, with the result that it has been left behind by the developed nations of the West. Russia’s GDP is considerably smaller not only than that of the US, but also of Germany, Britain, France and Italy.