Surprise Arrest of Russian Minister for Economic Development; FSB Long Prepared Case

November 15, 2016
Aleksei Ulyukayev, minister for economic development, arrested November 14, 2016 on bribe-taking charges.

LIVE UPDATES: Aleksei Ulyukayev, the Russian Minister for Economic Development, was arrested late last night, charged with receiving a $2 million bribe for endorsing the sale of a controlling interest in the oil company Bashneft to Rosneft, Russia’s largest oil company.

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Surprise Arrest of Russian Minister for Economic Development; FSB Long Prepared Case

Update: President Vladimir Putin has now removed Economic Development Minister Aleksei Ulyukayev from his post “due to loss of confidence,” Interfax reports.

Moscow’s Basmanny Court has ordered Ulyukayev to be placed under house arrest, TV Rain reports. 

Aleksei Ulyukayev, the Russian Minister for Economic Development, was arrested late last night, charged with receiving a $2 million bribe for giving a positive review for the sale of a controlling interest in the oil company Bashneft to Rosneft, Russia’s largest oil company, Novaya Gazeta and other Russian media reported.

While The New York Times reported that he is the highest level official to be arrested in Russia since the failed coup in 1991, then vice-President Aleksandr Rutskoy was arrested after the 1993 coup attempt, and former defense minister Anatoly Serdyukov was dismissed and detained in 2013, then amnestied by President Vladimir Putin in 2014.
Ulyukaeyv said he would cooperate with investigators, Interfax reported.
According to a source interviewed by Novaya Gazeta, the arrest was made by officers from the 3rd section of Federal Security Service’s so-called “Department K,” which stands for “counterintelligence” in credit and finance, one of the most influential offices of the Federal Security Service (FSB), responsible for overseeing the Central Bank. Officers of the FSB’s 6th Department, responsible for the FSB’s own internal security, were also involved in the arrest.

The news came as a shock to Russians, although recently President Vladimir Putin has been cracking down on official corruption, ordering the arrest of officials at the Investigative Committee, the deputy minister of culture and the governors of the Kirov, Komi and Sakhalin regions.

Svetlana Petrenko, spokesperson for the Investigative Committee said the Ulyukayev case “is about the extortion of a bribe from Rosneft representatives accompanied by threats,” RIA Novosti reported.
Kremlin spokesman Dmitry Peskov said the charges were “very serious” but claimed his case would get an independent court review and “as is well known, the court does not always agree with the opinion of the investigation,” Novaya Gazeta reported.
Perhaps not, but the overwhelming number of cases of arrests in Russia lead to conviction as Russia has a low acquittal rate.
The arrest of Ulyukayev, who is described as a relatively liberal economist by the independent media, was made on the basis of reports from Oleg Feoktistov the head of security at Rosneft, seconded to Russia’s largest oil company from the FSB. Until September 2016, Feoktistov had held the post of first deputy head of the FSB directorate.
Bashneft was seized from oligarch Vladimir Yevtushenkov in September 2014 and he was put under house arrest. The federal government then nationalized the oil company that had once been the property of Bashkortostan, a southeast republic of the Russian Federation. Eventually Yevtushenkov was released and did not claim compensation. Half of Bashneft was recently sold to Rosneft for about $5 billion.
According to Yuliya Latynina, a journalist for Novaya Gazeta, Ulyukayev could not have influenced the acquisition of Bashneft as the decision was made by Putin himself.

In fact the sale of Bashneft to Rosneft was predicted immediately after Yevtushenkov’s arrest by Russian and Ukrainian opposition made cynical by the level of corruption in Russia.

Kirill Kabanov, head of the National Anti-Corruption Committee, conceded in an essay for Izvestiya that Ulyukayev’s endorsement of the sale of Bashneft shares was only one of many and did not influence the outcome. He said his arrest was part of a “systemic purge” of corrupt officials, the first time a sitting minister was arrested. 

Peskov announced that no decision has been made yet to dismiss Ulyukayev from his post as minister.

Writing in Izvestiya, political analyst Aleksei Mukhin, general director of the Center for Political Information said Ulyukayev at first refused to endorse the privatization of Bashneft, maintaining that a state company was not the appropriate buyer. Then, “to the surprise of the Russian Federation president, expressed by him about a month ago,” Ulyukayev agreed to the sale.

Ulyukayev even penned some verse about his experience in government intrigue, referencing Shakespeare’s Hamlet and a Russian folk-expression, “Like a cap on a thief/Myriads of stars burn bright”.

Mukhin commented that the arrest of Ulyukayev was a “strong reputational blow to the liberal economic bloc” in Russia’s government.  

Anton Pominov, general director of the Center for Anti-Corruption Research told The Insider that after Putin expressed his surprise at the government’s position on the sale of Bashneft through a complicated scheme directly to Rosneft, rather than through an auction, law-enforcers may have understood they had a signal to take action.

A source told Novaya Gazeta that Ulyukayev did not personally take the cash in hand, unlike the Kirov governor Nikita Belykh, who was photographed with 400,000 euros spread out in front of him at a table.

Instead, the cash was put into a bank safety deposit box, but Ulyukayev had not withdrawn it.
Department K had already earned itself a poor reputation from the case of Sergei Magnitsky, the tax specialist for Hermitage Capital who died of torture in a Russian prison in November 2009.

“Department K of the FSB is not governed by any laws and it can do whatever it wants,” said Jamison Firestone, a lawyer at Hermitage Capital and a former colleague of Magnitsky. “It’s the department for partaking in economic crime. It’s not investigating economic crimes at all, but committing them.”

The department is headed by Ivan Tkachev, the former head of the FSB’s 6th department, responsible for internal security.

A source told Novaya Gazeta that FSB officer Feoktistov would have had access to all the information about financial transaction and personnel and would be authorized to put electronic surveillance on telephone conversations.

An FSB officer from Department K was also seconded to the Ministry of Economic Development and could have helped collect information on Ulyukayev, said Novaya Gazeta.

The suggestion is that the FSB had long-standing surveillance on Ulyukayev and may have set him up in revenge for his reluctance at first to let the Bashneft deal go forward.

Russian political analyst Kirill Rogov, who met with Ulyukayev not long before his arrest said he was “calm and full of plans for the future” and characterized his arrest as “surrealism.”

Putin’s crackdown on corrupt officials is part of a long-standing process of attacking the “excesses” of the 1990s, but is also seen as selectively responding in part to the kinds of allegations made by anti-corruption crusader Alexey Navalany and the recent revelations of the Panama Papers.

Certain figures in Putin’s inner circle such as Igor Sechin, CEO of Rosneft as well as officials he has appointed such as Yury Chaika, the Prosecutor General, remain impervious to corruption investigations despite evidence presented by the independent media and opposition; others not sufficiently loyal to Putin fall victim to the anti-corruption crusade.

The journalists who participated in the Panama Papers exposés discovered that Sergei Roldugin, a St. Petersburg cellist and Putin’s long-time close friend, appeared to have been involved in sending millions to offshore companies. Putin, who defended his friend when the Panama Papers were first published, distanced himself from Rodolgin earlier this month, when he said his foundation to support children’s music education, which had received $6 million from the state budget last year, had only spent 15% of its funds and “did not need so much cash.”

It is hard to know yet whether Ulyukayev will escape a maximum prison sentence of 15 years, or he will be released after his case serves as a warning, as did the cases of Yevtushenkov and Serdyukov.

— Catherine A. Fitzpatrick