Defence company mishaps signal Kremlin’s incapability, unwillingness to address corruption

  • Mihai Turcanu
  • 2.10.2017 15:39

On 21 September, the manager of Garnizon, the successor agency of Oboronservis, was changed for the seventh time in the last three years. The move reveals continuing deep structural problems in the Russian defence sector, its overall bureaucratic inefficiency as well as persisting corruption issues that the reform of the now-defunct Oboronservis did not manage to solve. They signal wider incapacity or unwillingness of Putin’s regime to handle high-level corruption and inefficiency.

Garnizon is the largest holding company belonging to the Ministry of Defence (MoD), and its role is to provide auxiliary services for the Russian military. Garnizon’s management is under a direct supervision of the MoD. It has eight very large sub-holding companies providing various kinds of maintenance, repair, construction, food and clothing production, energy and utilities management, as well as a number of other services for the MoD, its servicemen and their families. Garnizon was formed in 2014 on the remains of infamous Oboronservis, following its large corruption scandal including its leadership misusing the company’s property for their own benefit through a number of shady schemes. The corruption revelations around Oboronservis were so great that they caused the resignation and investigation of former Defence Minister Anatoly Serdiukov. Back then it was assessed that around 20% percent of the Oboronservis’ daughter-companies were bankrupt and the overall debt of the holding was 440 billion rubles (~USD 12.361.779.849 billion, mid-2012 ex. rate). Further, the loss from the scandal was estimated to be around 6.7 billion rubles (USD $185 million, as of March 2014).

 

Despite initiatives to reform Oboronservis, the change seems to have taken place in name only.

 

The new director of Garnizon Yurii Tsarikaev replaced Larisa Levina, who was demoted to the position of director’s deputy after less than only six months as the company’s top boss. The Russian press reported the move was caused by Levina’s failure to comply with a request by the MoD to halt the sale of Garnizon’s property - namely 159 hectares of land north of Moscow, which was listed for 30 billion rubles (~ USD 517.740.000) in mid-August. The Garnizon’s management simply refused to comment on MoD’s request to suspend the sell-off until further notice, calling this an internal issue. This was not Levina’s only infringement. On 25 August, contrary to MoD’s request, 14 Aresnal MVF, a subsidiary of Garnizon, sold without a public tender explosives and gunpowder for almost 14 million rubles (~ USD 240.869). On 31 August, Garnizon sold 41 million rubles (~USD 705.573) worth of scrap under similar circumstances. Moreover, another auction of land and property is planned for 20 October, with the starting bid at 2.4 billion rubles (~ USD 41.291.904). Given this kind of lack of transparency and inefficiency, it is no surprise that despite the initiative by Defence Minister Sergey Shoygu to reform Oboronservis the change seems to have taken place in name only. Garnizon shares the same issues with its predecessor, as in 2015 its net loss amounted to 6, 615 billion rubles (~ USD 114.161.670), and overall it was 340 billion rubles (~ USD 5.867.720.000) in debt.

 

According to the Russian press, Garnizon’s leadership simply ignored MoD’s warning not to sell its property. Even after this violation there was no actual punishment, just a gentle slap on the wrist and a slight demotion. Things in Garnizon seem to go the same way as they did in Oboronservis. Garnizon’s management has no reason to be worried about any kind of penalties as Anatoliy Serdyukov, the former Defence Minister, was left unpunished and without serving a single day over the massive Oboronservis corruption scandals. He is now well and working in Rostech, another state-owned defence industry company, despite protests from the opposition. Further, Yevgeniya Vasilyeva, the Head of the Property Department at the MoD, was not only pardoned but also given back the belongings she reportedly took - more than 19 kg in gold and platinum, as well as over 50000 precious gems.  A similar treatment was applied to a number of other culprits in the Oboronservis case. It is obvious that despite stealing hundreds of millions of dollars from the Russian people, Putin is not willing to punish those on whom his regime is built.

 

Kremlin’s incapacity or unwillingness to seriously address corruption in its defence sector is, however, a lot more serious than money laundering and shady schemes that in Sochi.  

 

Unfortunately for the Russian people, stealing, nepotism, and fraud have tainted a number of national efforts in the past, such as those relating to the 2014 Sochi Winter Olympics or the 2018 World Cup. They have also seriously affected projects of national significance as the building construction of the Russia’s Vostochny Cosmodrome. Kremlin’s incapacity or unwillingness to seriously address corruption in its defence sector is, however, a lot more serious than money laundering and shady schemes of Sochi. Although Garnizon provides only auxiliary services, it is still crucial for the military and its day-to-day services are critical for its functioning. The controversial sell-off of its property as well as other capacities, including explosives or property with valuable infrastructure on it, will likely weaken its capacity to reliably provide these services and thus could impact the lives and well-being of hundreds of thousands of Russian servicemen and women, who are the ultimate stakeholders in this regard.

 

Putin cannot really punish the rampaging public officials and tackle corruption because they constitute the backbone of his regime.

 

Russia’s revisionist policies in Ukraine, Syria, and elsewhere served as a great tool to prompt Vladimir Putin’s domestic popularity but it needs to be backed up by a strong military. With the weak and struggling economy, Kremlin already had to resort to slashing defence funds, again. Yet in theory, Putin could be going after corrupt high-level officials that are not only subverting the weak Russian economy but also further damaging the military - an important pillar of his power, especially now under increasingly high international pressure. Thought he might want to, Putin cannot really punish the rampaging public officials and tackle corruption, because they constitute the backbone of his regime. These contradictions only showcase grave, dangerous and chronic weakness of his regime.

About author: Mihai Turcanu

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