Sometimes, though, it seems that US legislation – the Foreign Corrupt Practices Act – is more effective in uncovering bribery in Russia than anything the Russians do. In 2010 Diebold, the American ATM manufacturer, complied with the FCPA by dismissing five top managers of its Russian subsidiary after it discovered they had given kick-backs to officials to get business. The German car-maker Daimler was charged under the FCPA with giving bribes worth more than €3 million to secure contracts with Russian government customers for the purchase of vehicles. The cars were bought mainly by the interior ministry, the defence ministry and the ‘special purposes garage’ which serves the political elite. Daimler paid the money into offshore accounts. After a long delay, in November 2010, President Medvedev ordered an investigation into the case.14
Corruption goes hand in hand with the lack of an independent judiciary. Little has changed despite Medvedev’s calls for an end to what he termed ‘legal nihilism’. The most notorious case concerned the young lawyer Sergei Magnitsky, who died in prison in November 2009 after being arrested by the very officials he had accused of fraud. Magnitsky was a lawyer representing a UK-based firm, Hermitage Capital, the largest foreign portfolio investor in Russia. Its founder, Bill Browder, had done much to attract investors to Russia and was a self-professed supporter of Vladimir Putin. He had even applauded the arrest of Mikhail Khodorkovsky as an attempt to clean up Russian business. Part of his strategy was to promote good corporate governance and fight corruption in the Russian companies in which he invested, in order to increase their share price and increase profits. In November 2005, after he had tried to force a secretive oil company, Surgutneftegaz (which is rumoured to have links to Putin), to disclose its ownership structure, he was blacklisted as a ‘threat to national security’ and barred from Russia. Hermitage’s Moscow offices were raided in June the following year by – Hermitage claims – corrupt law-enforcement officers who used the tax documents and company seals they stole to perpetrate a spectacular theft from the Russian state budget. Magnitsky’s investigations revealed that organised criminals working with corrupt officials used the stolen documents to fraudulently reclaim $230 million of taxes paid by three Hermitage subsidiaries. When Magnitsky officially accused the policemen who had raided the Hermitage offices of fraud, those same policemen at once arrested him and threw him into Butyrka prison, where he was held without trial for 11 months in squalid conditions. He fell seriously ill, was denied treatment and died on 16 November 2009. There is no medical record for the last hour of his life, and relatives found that he had broken fingers and bruises on his body. According to a report by President Medvedev’s Council on Human Rights, in his final hours, when he was in need of immediate medical care, Magnitsky was handcuffed and taken to a small room by eight officers, where he was beaten and then left alone for over an hour until he died, while an ambulance team waiting outside was refused entry.15
The story is a Kafkaesque nightmare of an individual destroyed by a ruthless and impenetrable system, in which the people who should have been upholding the law were breaking it, and the alleged criminals were able to persecute the man who accused them. Hermitage has since carried out detailed investigations into the case and compiled an impressive dossier of evidence. They discovered colossal sums of money in foreign bank accounts belonging to one Vladlen Stepanov, the husband of Olga Stepanova, who, as head of Moscow Tax Inspectorate No. 28, had authorised the ‘tax refund’ to dummy companies. The Stepanovs’ fortune is estimated at $39 million (one thousand times greater than their declared joint income). They have luxury villas on the Persian Gulf and the Adriatic and one in the Moscow region worth $20 million. Not bad for a mere state tax official. Their alleged accomplices in the tax office and police also have fabulous fortunes. Hermitage has located assets worth $3 million, for example, acquired by the family of Lieutenant Colonel Artyom Kuznetsov (official salary $10,200) in the years after he arrested Magnitsky.16
In Russia, Hermitage’s accusations have gone unexplored. Following the report by his Council on Human Rights, President Medvedev called Magnitsky’s death a ‘crime’. Several senior prison officers were fired, and two prison doctors eventually charged with negligence. But the report also found fundamental flaws in the prosecution of Magnitsky (including the fact that he was investigated by precisely the people against whom he had testified), yet those who allegedly committed the enormous fraud and then framed Magnitsky have gone unpunished. Indeed some of the investigators were rewarded and promoted for their services. The tax inspector accused by Hermitage, Olga Stepanova, now works at Rosoboronpostavka, the procurement agency of the Ministry of Defence, whose minister, Anatoly Serdyukov, happens to be a former head of the federal tax office.
In July 2011 the US State Department announced a visa ban for Russian state officials it believes are linked to Magnitsky’s death. Rather than investigate the case uncovered by Hermitage, however, the Kremlin announced it would retaliate by blacklisting certain US citizens.
How high does the trail of Russia’s sleaze, which is so blatant at lower and middle levels of the state, lead? There are simply no verifiable facts about corruption at the very top, only a wealth of speculation, gossip, accusations and circumstantial evidence. Putin, it is true, does not mind sporting luxury wristwatches that suggest an income far in excess of his government salary. Neither does Dmitry Medvedev. Several websites show photographs of the men wearing watches that cost as much as they earn in a year.
The allegedly well-connected commentator Stanislav Belkovsky famously claimed that he had ‘evidence’ that Vladimir Putin’s assets amounted to $40 billion. According to Belkovsky, Putin controlled 37 per cent of the shares of the oil extraction company, Surgutneftegaz, owned 4.5 per cent of Gazprom and held at least 75 per cent of a secretive Swissbased oil-trading company, Gunvor, founded by a friend, Gennady Timchenko.17 There is simply no way of verifying such claims, and Belkovsky is something of a self-publicist. Putin himself described the allegations as ‘just rubbish, picked out of someone’s nose and smeared on bits of paper’. A prominent Russian businessman, acquainted with both Putin and Timchenko, told me the figures were nonsense and that Putin does not even need such huge sums of money because, like a mafia boss, he can simply have anything he desires. It is not ownership but control, and the network of acquaintances, that counts.
It is certainly undeniable that a clique of businessmen close to Putin made immense fortunes during his presidency.18 It would be surprising if his friends did not feel indebted to him.
According to a list of Russia’s richest people published by Finans magazine in February 2011, Gennady Timchenko, with a personal wealth of $8.9 billion, is in 17th place. His company, Gunvor, has become the world’s third-largest oil trader, shipping one-third of Russia’s exports, including those of the biggest state companies, Rosneft and Gazprom Neft. Timchenko and Putin have links that go back to the latter’s days working in the mayor’s office in St Petersburg. According to the Financial Times, corporate records show that the two men participated in the early 1990s in a company known as Golden Gates, which was established to build an oil terminal at St Petersburg’s port, but foundered in a clash with organised crime. Local parliament records show that a Timchenko company was also ‘a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Putin when he worked as head of the city administration’s foreign economic relations committee in 1991’. Timchenko is also said to have close ties with Surgutneftegaz, the Kremlin-loyal oil company whose ownership is undisclosed.19