Growing Corruption In the Russian Military

July 15, 2013
Entrance to Oboronservis | Photo - the Moscow News

The Russian State-Media outlet RIA Novosti has published an alarming headline on the state of corruption inside the Russian military:

The financial cost of corruption uncovered in the Russian Armed Forces this year has soared 450 percent from last year to over 4.4 billion rubles ($130 million), the Prosecutor General’s Office reported on Thursday.

“The amount of damage inflicted on the state by corruption crimes this year rose by five and a half times to over 4.4 billion rubles,” the Prosecutor General’s Office said in a statement. “Every third corruption offense is committed by civil servants and civilian personnel.”

This number is shocking in its own right. Putin has declared a campaign to fight corruption. But what makes matters worse is that the last Defense Minister,  Anatoly Serdyukov, was fired for corruption, and a massive corruption case involving the ministry of defense has just been shut down. How can things be getting worse?

In the last year, a multi-billion dollar fraud case has been unwraveled. At the center of the embezzlement is a company called Oboronservis. Moscow-based Lenta.Ru provides this summary of the case (translated by The Interpreter) in which arrests are still being made:

The Oboronservis case was opened in the fall of 2012. According to the investigation, real estate and land owned by the Ministry of Defense was sold off at reduced prices through a holding company created to hide the officers’ economic activity. The appraisals were made by the Ekspert Center, which at that time was headed by Yekaterina Smetanova. Along with Smetanova, her husband Maksim Zakutaylo and a former classmate Yevgeniya Vasilyeva also became suspects. Vasilyeva worked for a time at the Defense Ministry, and was said to be close to then-Defense Minister Anatoly Serdyukov (who was fired in the fall of 2012).

“Close” to Anatoly is polite. As we noted in last week’s post on the Magnitsky verdict, Vasilyeva was Anatoly Serdyukov’s mistress, and that fact played a key role in the Magnitsky case and the fall of the once-powerful Serdyukov clan. In fact, since the Magnitsky case, a slew of new investigations have uncovered more corruption, much of it within the military. The Interpreter’s editor Michael Weiss explains:

[The Serdyukov investigation] is the gift that keeps on giving, with more and more pilfered money turning up with each news cycle. $3 million was allegedly stolen from Russia’s Strategic Missile Forces (RVSN), “with high-level Defense Ministry officials and commercial executives suspected of involvement,” as RIA Novosti reportedFriday. Yesterday, it was disclosed that a dacha belonging to Serdyukov’s brother-in-law had extensive renovations projects paid for by the Ministry; according to the Moscow Times, an “entire battalion” of army conscripts was apparently tasked with constructing a road, two bridges and seeing to the attendant landscaping, to the cool sum of $3.3 million. All so the boss had a nice place to visit with his sister on the Volga delta.

One would think that this development would also have a chilling effect on future corruption. So why is corruption on the rise?

To be fair, it is the fallout from the Serdyukov investigation that is partially to blame for this spike in reported crimes. Many of the arrest and recovered rubles that are the result of his fall from grace are included in these numbers.

There may be another reason why corruption appears to be on the rise, however. Serdyukov focused on enacting significant reforms during his five years as Defense Minister. Much of these reforms involved reducing the “bloat” of Soviet-era policies by streamlining leadership (a move that angered the displaced officer corps). First of all, some of Serdyukov’s moves empowered civilians to take some responsibility that was once the military’s, and some of those civilians, like Vasilyeva, used this as an opportunity to rob the system. One cost-reduction mechanism put into place during this time was to put research and production of military equipment up for bid. This system did reduce military costs, and Serdyukov angered some in the defense industry by driving down the prices of goods. However, as a report from PONARS Eurasia suggests, this process also opened up the system to even more fraud:

State financing does not necessarily flow to the companies that are best suited to produce the weapons and equipment sought by the Russian military. As with much of the rest of Russia’s economy, financial flows depend a lot more on the companies’ connections with top leaders and ability to stay on the right side of changes in the political environment. As long as political considerations outweigh factors such as cost and quality in the Russian government’s military procurement decisions, the defense industry’s ability to meet its targets will remain suspect. Although the integration of a majority of sectors of Russia’s defense industry into monopolistic holdings may have initially been beneficial in eliminating duplication of effort and promoting economies of scale, it is now hindering innovation, increasing costs, and reducing the quality of production.

What needs to be kept in mind when considering corruption in Russia, however, is that fraud is often only prosecuted when it is politically convenient, or when the accused are politically at odds with the current leadership. If someone is implicated for Serdyukov-era fraud, they may be considered “Serdyukov’s people,” and thus are open to prosecution because Sedyukov is out of favor with Russian leadership and he has also been publicly disgraced.

This doesn’t mean that Defense Minister Sergei Shoigu, Serdyukov’s replacement, is any better at fighting corruption. It may mean that he’s only targeting a select group of criminals, while sowing the seeds for the next batch. As such, a judgement on Shoigu’s legacy will have to wait at least one more year.


Update: Mark Galeotti has also published a good analysis of this new corruption report. He adds this detail:

The irony is that while many of the cases brought relate to relatively junior officers engaged in small-scale pilfering and corruption, the bulk of the losses came from high-level corruption within the ministry’s budget and procurement divisions. One in three cases involves civilian personnel and civil servants, and this reflects a deep criminalization of all parts of the security apparatus.