The Putin Mystique: Inside Russia’s Power Cult (24 page)

And given Russia’s paper law, it was only a matter of time before law enforcement officials who worked the protection racket dug up enough on his company to put someone in jail.

Given that the key charge levelled at Putin’s regime by his opponents is corruption, understanding the peculiar advantages this system poses for millions of people helps elucidate the resilience and the
de facto
stability of Putin’s rule.

As the Medvedev-backed investigation into Magnitsky’s death sputtered to an end and as those who had persecuted Browder and Magnitsky were cleared of wrongdoing by Russian authorities, new evidence started emerging about about how, exactly, they had benefitted. Many of these officials, including Lieutenant Colonel Artyom Kuznetsov and Major Pavel Karpov, both of whom Magnitsky had accused of taking parts in the tax rebate scheme, would go on to be named in the U.S. Magnitsky List of officials banned entry to America.

Documents appeared showing that Kuznetsov, who lived on an official Interior Ministry salary of £7,200 a year, had purchased a £55,000 Mercedes convertible and a £90,000 Range Rover in the name of his wife. Travel receipts showed him splurging thousands of dollars at a five-star resort in Cyprus. Many of these receipts were dated before the June 2007 raids on Hermitage offices that enabled the fraudulent tax refunds to take place.

Karpov, meanwhile, is documented as owning a £50,000 Mercedes Benz and a £28,000 Porsche registered in his wife’s name – all despite an official salary of just £4,000 a year. Far from casting a shadow on his prospects, over a year after Magnitsky’s death Karpov was promoted.
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Not only law enforcement officials were getting rich. Olga Stepanova, the head of the Moscow Tax Office who authorized a whole string of fraudulent tax refunds between 2006 and 2008 (including the $230 million transaction with Kuznetsov), allegedly acquired over $38 million of assets – including a villa and two apartments in Dubai, a $12 million estate in the Moscow region, and a seaside villa in Montenegro – with many of the assets registered in the name of her pensioner mother-in-law.
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In autumn 2012, following the sacking and investigation against her former patron, Defence Minister Anatoly Serdyukov, Russian authorities would launch a probe of Stepanova on allegations that she stole 8 billion
rubles through tax fraud.
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The Magnitsky affair and the officials who got rich from Hermitage’s refusal to accept Kuznetsov’s protection services is no isolated case – because a death was involved, it publicized a mechanism that is replicated in thousands of cases. In fact, in 2006 another major investment fund – Renaissance Capital – fell victim to a nearly identical tax refund scam involving $107 million. But even RenCap, which had links to government agencies, understood that little good would come of publicizing the fraud and chose to ignore it.
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As for extortion and protection rackets in law enforcement, we have seen earlier just how pervasive the practice is. For every high-profile scandal involving the death of a sick person in pretrial detention, there are dozens of routine stories of police and prosecutors protecting illegal gambling establishments – and then celebrating such business partnerships with expensive vacations.
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The critical mass of people from a variety of government and even non- government posts involved in what has been given the blanket term of “corruption” may hold the key to why it is impossible to overcome – because we are in fact dealing with a problem of terminology and social values. Take, for instance, a widely accepted definition of corruption, proposed by Samuel Huntington, as “behaviour of public officials which deviates from accepted norms to serve private ends.”
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But when a fifth of the economy consists of bribes, kickbacks, and other forms of off the books enrichment – totalling some $300 billion
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– it is hard to see this as a “deviation.” When nine out of ten economic crime cases are fabrications,
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the “law” is merely an instrument for the enrichment of those entitled to apply it. And however bad it is, it is in fact an indelible part of the norm by virtue of its sheer pervasiveness. In other words, “corruption” is the norm for a sizable – 20 percent – minority of businessmen and state officials.

And so the process that Magnitsky ultimately became a victim of was actually a way of life for millions of people – an entire social stratum that includes civil servants, tax officials, investigators, police and security officers and even businessmen. And for every Hermitage that refused Kuznetsov’s protection services, ten firms probably acquiesced. After being allowed to function this way on
such small salaries for so long, a decisive denial of this kind of lifestyle could have seriously undermined the very functions of the law enforcement system. In other words, if President Dmitry Medvedev’s anti-corruption campaign had actually stopped corruption, millions of police officers would suddenly be forced to live on less than £350 a month. And that on its own would have presented an acute national security problem, threatening the very foundations of Putin’s hold on power.

Mark Galeotti is one of the few scholars to have recognized some of the advantageous aspects of corruption and tax farming in Russia – not just as a way of governing, but even for some parts of the population. Describing tax farming as officials being “granted areas of responsibility and revenue targets and cut loose to raise all they could without igniting rebellion,” Galeotti enumerated several benefits to the state and the populace, such as low start-up costs, political loyalty from a vast swathe of enriched officials whose loyalty mattered, and simply “getting the job done.”
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It is getting the job done – making things happen – in particular that may help explain Putin’s popularity among a large number of foreign investors like William Browder. Though they recognize the need for more transparency, they also see Putin as someone strong enough to balance the best of both worlds.

What this may suggest is that norms and practices termed as “corrupt” are not accepted as corrupt by everyone – only by those who suffer from them. In other words, certain norms may actually be accepted by large parts of a society, but outlawed on paper – it is this gap, in fact, that may account for many of the problems. One Western fund manager, who spoke on conditions of anonymity, described this collision: “In the Middle East, a company can’t get a contract without a local partner. You end up with a contract price that should be $100 million, but it ends up being $200 million because the local partner needs 50 percent. Is there a difference between that and bribery? There isn’t a difference in cost, but there is a difference in how you go about it. One is upfront and clear, the other is untransparent and shady.”

As Galeotti argued, in many cases “corruption” winds up “humanizing” what is otherwise an enormously intimidating political system.
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It is significant that Galeotti was writing this in 1998,
even as then President Boris Yeltsin was rhetorically decrying corruption in his country – with corruption already rampant. By the time Putin arrived in the Kremlin, being himself part of that corrupt system, he took a problem that he had no ability to eradicate and co-opted it for the benefit of the state.

For a large part of the population, the unspoken rules that he was quietly offering, the possibility of private enrichment based on one’s government caste, even as he spoke publicly about “the dictatorship of the law”, was like an unexpected, endearing smile that flickered on a man at once cold, threatening and faceless. To succeed, you had to understand where you stood with regards to the inner circle.

That power which broke our own in fragments

Binds us together, alone can bind us still:

When strength is out, the body falls to dust.

Our only chance of safety, Boyars, lies

In going now, the whole assembled Council,

To the Tzar at once, in falling at his knees,

There to entreat him yet he give not up

His throne, aye, that he yet save Russia.

-
Boris Godunov
, from The Death of Ivan the Terrible, by Alexei Konstantinovich Tolstoy
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ONE HUMID AUGUST evening in 2009, during the peak of the economic crisis, Andrei Kolesnikov,
Kommersant’s
star reporter and one of the only journalists in Russia who had exclusive access to Vladimir Putin’s ear, gathered his friends and colleagues in a fashionable Moscow gallery to muse on the meaning of life over champagne and caviar sandwiches.

The featured guests, who included oligarchs like Alfa-Group chief Mikhail Fridman, former
Kommersant
editor Andrei Vasilyev and President Dmitry Medvedev’s diminutive economic advisor Arkady Dvorkovich, all had one thing in common: they had written essays for the current issue of Kolesnikov’s quarterly glossy,
Russian Pioneer
.
The essays were loosely focused on a topic of Kolesnikov’s choosing, which happened to be “the meaning of life.”

As the guests read out their pieces, they kept getting off the subject and talking, inadvertently, about the prime minister.

There was at least one reason for the digressions. In the previous issue, in May, Kolesnikov outdid himself by talking Vladimir Putin into contributing a column to the magazine. The prime minister, in a text that read remarkably much like the way he spoke, revealed no sensational secrets about his private life nor gave any opinions on pet policy issues. Instead, Putin explained “Why it is difficult to fire a person.” The topic, Kolesnikov explained to me later, had been agreed together with the prime minister in a private conversation – as a veteran pool reporter and co-author of Putin’s 2000 biography, Kolesnikov had that privilege, even though he admitted he was loath to take advantage of it.

Received by the public as a supposed glimpse into Putin’s inner world, the column didn’t really reveal anything the public did not already know from his nine years in the Kremlin – including the fact that Putin found it difficult to fire people. Instead, it was an artefact of stardom in the same way that any handiwork of the prime minister – whether an amateur painting (which was auctioned just that May), or a doodle in a notebook – attracted curiosity by virtue of simply having come out of his mind. At least, it was presented that way by the media – so much so that Kolesnikov found it difficult to enjoy his subsequent holiday in Venice because of the continuous pestering from journalists.

Indeed, that was the whole principle of
Russian Pioneer
. Funded by billionaire Mikhail Prokhorov’s Onexim holding,
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it was written for and by the affluent elite (the Kremlin ideologist, Vladislav Surkov, was one of its authors) to give the hip and savvy a glimpse of what the masters of the universe could compose if given a proper platform. With a hefty dose of Soviet kitsch, the magazine brandished a nostalgic name and helped revive the obscure Soviet tradition of public readings – known as pioneer readings, after the
pionery
, the Communist youth groups of Kolesnikov’s childhood. Now doused in fine wine, with tuxedoed waiters with earrings in one ear, and a high concentration of oligarchs and TV celebrities, the constituents of the gallery bore little resemblance to the Soviet
childhoods they were paying homage to.
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Except for one small thing that no one seemed to be making much of: they kept returning, in jest and mock reverence, to the topic of the prime minister – as if fearing Big Brother was a fetish of sorts, even for those who consorted with him personally on a regular basis.

Sitting in front of that inebriated audience, Kolesnikov shared a moment of doubt, as if getting Putin to contribute had served as an epiphany of sorts.

“In the last issue, having secured Vladimir Putin as a columnist, I kind of got stuck,” Kolesnikov told his audience. “I mean, I reached the highest achievement any editor-in-chief could hope for. And that’s why I started thinking about the meaning of life.”

The remarks were not without Kolesnikov’s trademark irony, for he seemed to be suggesting that when your day job involves looking over Vladimir Putin’s right shoulder, you start thinking about the meaning of life a lot sooner.

Nevertheless, the continuity of that issue’s topic – its indirect connection with the prime minister – inevitably coloured much of what was said afterwards.

When Andrei Vasilyev, the
Kommersant
editor, read his own column out loud, he paused over the word “shit.”

“I’m sorry,” he joked, “But Putin isn’t in this issue, so it’s OK [to curse].”

“No it’s not!” Kolesnikov retorted from the audience to a burst of laughter.

But the joking reached an apotheosis with the appearance of Mikhail Fridman. Closely connected to Putin and the Kremlin, Fridman’s Alfa-Bank once sued
Kommersant
in 2004, alleging the newspaper exaggerated liquidity problems in the bank and provoked a massive cash flight as customers stormed ATM machines (
Kommersant
, then owned by exiled oligarch Boris Berezovsky, came out with blank pages in protest after losing the suit). Fridman was a close colleague of Pyotr Aven, who was an old friend of Putin. In July 2011, Fridman would be one of twenty-seven businessmen who sat in on a closed-door meeting with President Dmitry Medvedev, amid reports that Medvedev, sensing his own diminishing chances for a second presidential term, asked the businessmen to choose between him and Putin.
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And so he was firmly in the inner circle
of the dozen or so members of the moneyed elite whose consensus, much as it had since the 16th century, determined who ruled Russia.

Everyone knew this, and Kolesnikov knew that everyone knew this as well. As Fridman settled into the chair on the stage, Kolesnikov asked him, “Today is the 10th anniversary of Putin becoming prime minister [in 1999]. Is that, um… good?” (He sounded as if he had clearly run out of questions for comment on that illustrious fact).