Risky Russky Business (Analysis of Putin's Russia Politics and Business)

The West’s need for Russia’s energy and cooperation regarding Iran, Iraq, China, and the “War on Terrorism” will likely lower the standard demanded for a full membership in the G8 group, to allow Moscow’s ascendance to the rich nations’ club, at the St. Petersburg meeting in July.

“In the six years since he pledged to uphold democracy as a 'dictatorship of law,' President Vladimir Putin has increased the role of the police and security services in governing Russia and wielded the power of the courts for political ends,” says the Director of the London based Foreign Policy Centre, Stephen Twig. Indeed, according to the former director of Communist Romania’s intelligence service Lt. Gen. Ion Mihai Pacepa, while “the Soviet Union had one KGB officer for every 428 citizens. Putin’s Russia has one FSB-ist (Federal Security Service) for every 297 citizens.”

This huge increase in security personnel did little to control the rising corruption that plagues Russia. On the contrary; more state agents demand more bribes from Russian citizens and foreigners doing business in Russia.

In 2005 alone, Russian businesses paid an estimated $316 billion in bribes, about 20 percent the country’s GDP that year, according a report by the Moscow based Indem Foundation. And corruption is not limited to business; Russian citizens are forced to pay bribes to receive basic services that the government is supposed to provide for free. Want your driver’s license in the near future? Your passport ready before your flight takes off? Your marriage license? Pay up.

The closely held $20 billion-plus Alfa-Eco seems to represent Russia’s business- ethic practices. It was founded in the Soviet Union in 1988, during Gorbachev’s perestroika. “Its core business was computer sales, producing and selling devices for ecological control of products, tea production, as well as selling carpets and consumer goods.”

Today, the Alfa empire, has Russian, European, Asian, Caribbean and U.S. branches and offices managing companies in banking and finance, oil and gas, mobile telephone service, construction material, commodities, food processing and supermarkets. Its subsidiaries include Alfa Capital Markets, Alfa Bank, Tyumen Oil, Altimo, Perekriostok Group and countless others. Alfa’s Chairman Mikhail Fridman, 42, who was ranked by Forbes list of the richest as No. 50, owns 40 percent. Alfa also “controls three international corporations that are publicly traded in the U.S.”: VimpelCom and Turkcell are traded on the NYSE, and Golden Telecom is traded on the NASDAQ.

To maintain good relations with the Kremlin, Fridman, who served as an economic adviser to President Boris Yeltsin, gathered around him central Russian figures past and present. Alfa President Pyotr Aven, for example, was trade minister in Yegor Gaidor's 1992 government, and reportedly remains Putin's close friend. Similarly, Leonard Vid, former U.S.S.R. First Deputy Head of the Gosplan central planning committee, was for at least five years Chairman of Alfa Bank's Executive Board responsible for legal divisions, interest committees and representation in Russia's federal government and Central Bank.

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According to a 1,000-page, September 2004 CIA report by Charles Duelfer, “The Iraqi embassy in Moscow assisted, among other deals, a Russian company called Alfa Echo in signing contracts for importing oil from Iraq.” After September 2000, Duelfer reports, all companies in the oil-for-food (OFF) program paid illicit “surcharges” to Iraq. Furthermore, the Volcker Commission reported to the United Nations that at least two Alfa subsidiaries conducted at least 15 transactions involving more than 100 million barrels of oil worth at least $2 billion dollars. Indeed, the committee wrote, “About 2.8 percent of the Iraqi oil exported under the Programme was sold through Alfa Eco, [which] was the fourth largest purchaser of Iraqi oil ....”

In one instance, Volcker reported, Alfa paid more than $300,000 in kickbacks for 10 million barrels of oil worth more than $249 million. In November and December 2001, Volcker data shows that Alfa paid at least three other kickbacks totaling $1.73 million. Of $2,351,880 in total Alfa oil trading kickbacks to Iraq, the Volcker commission reports, more than $2 million in cash was paid “through the Iraqi Embassy in Moscow.” ...Illegal oil surcharges generated at least $229 million for Saddam Hussein, according to October 2005 testimony from Michigan Senator Carl Levin. But the oil-for-food program generated at least $1.5 billion in illegal payments on “humanitarian” goods. Here, too, the Volcker commission discovered illicit Alfa kickbacks on “humanitarian” shipments of milk, sugar, tea, detergent, wheat, rice, pulses, laboratory gases, measuring and control instrumentation, and other items.

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