Search This Blog

Friday, 16 November 2012

In Russia everything is big, even corruption: did former defense minister Serdyukov commit massive fraude with Russian army real estate?

If you steal a bread, you are a thief;
If you steal a billion, you are a successful business-man…

At this moment, Russia is the real land of the unlimited possibilities… for some people.
  • People that have a ‘healthy’ disliking for the concepts ‘fair and honest’;
  • People that don’t know the difference between private and public property;
  • People that don’t give one bit about other Russians, but instead look at them with disdain; 
  • People also, who have a good position for arranging their opaque deals, in other words, people that reside in the top of the Russian foodchain.

People like this can be found among: 

  • governors, mayors, local politicians, members of the Duma (Russian parliament);
  • directors of large museums, palaces and other touristical attractions; 
  • executives of current and former state companies;
  • executives of private companies that have close relations to government officials;
  • the well-known billionaires, who acquired large shares of Soviet property for a token price in the 'wild' years after Gorbachev's retreat;

One of the things that many of these people have in common, is being a close acquaintance of Vladimir Vladimirovich Putin or Dmitriy Anatolyevich Medvedev. The president and prime minister of the mighty Russian empire, sometimes jokingly called 'Batman and Robin'.

Some were close friends of Putin during his student years at the State University of St-Petersburg, other people know him from his time as FSB-agent (the successor of the KGB intelligence service). Yet others owed him their job during his first two stints as president.

Vladimir Putin is a very loyal friend, once you have gained his trust. He helps his friends and lets them profit from his access to the wealth and vast resources of the Russian Federation. If his friends stay under the radar of public opinion and the press, don’t betray or attack Putin personally and don’t rob the state too openly, they can virtually do what they want with the state possessions they are entrusted with.

One person that didn’t seem to learn this lesson well is the former Russian Finance Minister and Defense Minister Anatoli Serdyukov.

As a defense minister, he was entrusted with the restructuring of the large Russian army, in order to adjust it to modern warfare and make it more cost-efficient. During this restructuring process, many obsolete army buildings, baracks and terrains became superfluous and ready for sale to public and private parties.

Instead of selling these buildings and terrains for a fair price at the highest bidder, Serdyukov reportedly sold these buildings at very low prices to personal acquaintances and 'straw men' via a business vehicle, called Oboronservis. 

During this sales process, he probably used a method that is well-known in The Netherlands from the massive 'Klimop' (i.e. Ivy) real estate fraud scheme, involving executives from the Philips Pension fund and Bouwfonds:

A real estate object (building or terrain) is sold for a price far below the ‘marked-to-market’ value to a straw man (straw company), who works for the seller. Days or even hours later, the object is again sold, but now to the eventual buyer at fair value. The profit of (sometimes) many millions is for the original seller and his straw men; the loss is for the company or organization that owned the real estate before the sales operation.

In some cases in The Netherlands, there had been one extra sale of the object at an intermediate price between the ‘token’ first sales price and the final sales price. The sellers did this to make the price difference between the first and the last sales price not too conspicuous for outsiders. This pattern of sequential sales of the same real estate objects, has been used over and over again for dozens of office buildings. There have been yields to the tune of hundreds of millions of Euro’s for the fraudulent sellers, while Philips workers and Bouwfonds investors have been robbed from their hard-earned investments.

It was a world of Ferrari’s, luxury yachts, expensive callgirls and €100,000 wrist watches for the people who were part of this fraud. In The Netherlands, the small country that it is, this kind of fraud demanded a ‘reliable’ network of corrupted notaries, attorneys and realtors, who kept their mouths shut about these suspected transactions, in exchange for a slice of the pie. The only way to let this fraud continue for years and years was keeping everybody happy, with lots of money and presents.

This is a problem that the Russian defense minister Anatoli Serdyukov hardly could have had in the years that his fraud continued. He has probably used the largeness of Russia to his advantage, as it is less visible that the same people and companies are constantly making their opaque deals with military real estate objects.

Besides that, the power and influence that Serdyukov’s ministerial position brought, his close friendship to ‘Vladimir Vladimirovich’ Putin and the respect that he commanded against subordinates in the very hierarchic country Russia, was guarantee enough that people would keep their mouth shut, or else….

The Dutch financial newspaper Het Financieele Dagblad wrote the backgrounds on this explosive story:

Anatoli Serdyukov could have been warned in advance. Already for months, rumours were spread that Serdyukov, who has been sacked yesterday [November 6, 2012 – EL] by president Vladimir Putin, had been involved in a fraud case. About two weeks ago, Serdyukov skipped a personal meeting with PM Dmitriy Medvedev, in order to be around when the Russian secret police held a raid at the Russian sales agency for the Ministry of Defense ‘Oboronservis’.

Serdyukov wasn’t arrested, but three subordinates were. Speculations that the agents had been targeting Serdyukov were soaring when the amounts were disclosed: Oboronservis would have sold military objects and real estate, owned by the Russian Ministry of Defense, for a token price to acquaintances of Serdyukov. This fraud had cost the Russian state more than 3 bln ruble  (€75 mln). Now the moment has come: Serdyukov is dismissed from his function, in order to ‘shape the conditions’ to investigate this massive fraud at Oboronservis.

Serdyukov, who studied economy in Leningrad (i.e. St-Petersburg) in the eighties, became in February, 2007, the first Russian Defense Minister without a military background. The most important task of the former entrepreneur: fighting the corruption in the military organization and restructuring the army, to make it more efficient.

The defense minister started a large restructuring operation. Not only did he fire hundreds of military officers, he also targeted the possessions of the ministry. The establishment of Oboronservis, in September 2008, fitted in his plan to outsource maintenance and logistics. Privatizing these activities would increase efficiency, according to Serdyukov, who was chairman of this agency until last year. However, Oboronservis waisted millions of Euro’s by selling government property below the market price.

According to unofficial sources, it is not so much the fraud that cost Serdyukov his job: Serdyukov is married with the daughter of former Russian Prime Minister and current CEO of Gazprom Viktor Zubkov. Had the family relation between (at the time) Finance Minister Serdyukov and his father-in-law PM Zubkov not been a problem for Putin, this time it was different.

During the raid of the police, Serdyukov had been found in the house of Yevgeniya Vasilyeva, an official of Oboronservis and suspect in the corruption case. This had been shocking for Zubkov, who is still a very close friend of Putin’s. ‘Even as a defense minister, it is not wise to mess with your father-in-law. Especially when he is Viktor Zubkov’, according to the human rights’ activist Vladimir Pribylovski, who was quoted in the Washington Post.

Everybody, who thinks of a conspiracy of Vladimir Putin against a dissident minister, should wake up. The fairly critical and independent Russian newspaper Komsomolskaya Pravda ( printed some juicy details on this massive fraud case. The following snips have been translated from Russian by Google Translate and have been finetuned by me:

This Thursday, October 26, the Investigative Committee of the Russian Federation has conducted searches in an independent commercial organization "Oboronservis". This was on the same day followed by the following statement of Defense Minister Anatoly Serdyukov:

"The Defense Ministry has an interest in conducting a detailed investigation of all charges leveled against officers of the sales agency ‘Oboronservis’. At this moment all public statements, concerning the damage and the involvement of Oboronservis officials, are nothing more than speculation”.

After this statement, Anatoly Serdyukov was summoned to the president at Novo-Ogarevo. Then an official statement was made by the Kremlin: "The president has asked the Minister of Defence to provide full cooperation with the investigation, which is ongoing."
The same day an official statement had been put on the website of the Investigative Committee:

"Investigators from Chief Military Investigative Directorate of the Investigative Committee of Russia have found five possible criminal cases ... of fraud in the sale of real estate, land and shares owned by JSC "Oboronservis". An investigation has been executed at the CEO’s offices of the public corporations' Voentorg "," Agroprom "and" Red Star ", which are part of the holding company" Oboronservis ".

In addition, there has been an investigation at the apartment, occupied by the former head of the Department of Property Relations for the Ministry of Defense, Evgenia Vasilyeva. Besides documents relevant to the case, the investigators seized more than 3 million rubles, antiques, dozens of pictures and a lot of jewelry. The investigation will be continued. "

A few days later, the Russian Audit Office presented an official report concerning the investigation of fraud cases with property under management of "Oboronservis". The following cases were printed:

Krasnodar, Temryuk district

On an area of 30,000 sqr meter, a complex has been built for 300 million rubles (€7.5 mln) at the expense of the Defense Ministry. Afterwards, this area had been sold for only 92 mln rubles.

A complex of buildings, belonging to the 31st State Planning Institute for Special Construction, had been sold for a price of 282 million rubles below market value. (The real sales price is unknown).

An 11-storey hotel has been sold for 600 million rubles, which is less than 50% of fair value.

Three other buildings in the center of Moscow have been sold for 700 mln rubles, at least 200 million below fair value, according to the Special Construction institute.

On November 13, the Russian online magazine ‘Argumentiy y factiy’ (i.e. Discussions and Facts) prints the following details:

A complex of 70 permanent buildings and 20 hectares of land were sold at 30% of market value. The whole property was sold for 320 million rubles, while it had a market value of more than 1 billion rubles, according to experts.

Two other articles in Komsomolskaya Pravda (article one and article two) contain further details on this evergrowing fraud case, that also includes Serdyukov’s sister and personnel.

One especially juicy detail is the fact that 54 valuable paintings of Russian masters, like Ilja Repin and others, moved from the official property of the Ministry of Defense to the personal belongings of Serdiukov. No questions asked…

Unfortunately, this form of art theft is reportedly common practice among directors and officials of Russian museums, palaces and other touristical hotspots. As I said in the beginning of this article: the line between public and private property is very fine in Russia.

Of course, everybody is innocent, until proven guilty in the court of law. Also this former Russian minister is… However, appearances seem to be strongly against him, if you read the mounting list of articles that have been printed on this subject in especially the Russian newspapers.

While it remains unclear what exact motive made Putin fire Serdyukov, a fact is that Putin is loyal to his friends. Very loyal…

According to anonymous sources of the Russian press agency Interfax, quoted in Komsomolskaya Pravda, Serdyukov has been offered a job at ‘Rostechnologiy’, a state engineering agency, where he has worked before. This news message has not been confirmed yet, however.

Has dismissed defense minister Anatoli Serdyukov found a new job?

On Wednesday evening, "Interfax" (referring to an anonymous source) reported that the ex-minister of defense became an adviser to the general director of the state corporation "Rostechnologiy".

In this case, the informant allegedly told the agency: "The appointment of Anatoly Serdyukov has already taken place. Soon he will assume the duties of Advisor for CEO Chemezov at Rostechnologiy.

Officially, however, this information to the correspondent of "KP" in the corporation has not yet been confirmed.

If Serdyukov indeed gets this job, it proves once again that Putin is not really serious about fighting corruption. That makes sense, as his future pension might depend on this.

No comments:

Post a Comment