Democracy Lab

Breaking the Grip of the Oligarchs

How a tragic twist of fate is fueling a revolt against Armenia’s overweening tycoons.

On a summer evening in late June, three military doctors ventured into a lavish restaurant on the outskirts of Yerevan, Armenia's capital, to have dinner. With its marbled beige floors and crystal chandeliers, the restaurant, known as Harsnakar, is a favorite for weddings, anniversaries, and friendly get-togethers.

But things didn't go according to plan for 35-year-old Major Vahe Avetyan, one of the army doctors accompanying his colleagues on a night out. The man allegedly got into an argument over inappropriate dress code with security staff from the restaurant, which is owned by Ruben Hayrapetyan (pictured above), a business tycoon and then-member of parliament. Avetyan was brutally beaten and hospitalized with severe head injuries. Soon, grim photos of the doctor emerged on social networks. Bandaged and unconscious, he lay on a bed in the same hospital where he had worked, in critical condition. Twelve days later, he died.

The public outrage was unprecedented. It isn't uncommon for the employees of business tycoons to engage in violence. But this was the first time that someone like Avetyan -- a married father of two whose job involved caring for Armenia's highly respected armed forces -- had inadvertently felt their wrath, and paid for it with his life.

The death of Avetyan at the hands of bodyguards employed by Hayrapetyan has become a catalyzing event. Shocked Armenians mobilized in large numbers throughout the summer. The frustrations with a culture of bodyguards whose brutish behavior had become notoriously violent over the years spilled onto the streets and social networks. Legislation to regulate the private use of bodyguards has been introduced in parliament: The draft law stipulates that private security personnel will be required to don uniforms, to apply for weapons permits, and to register their weapons with law enforcement.

The ongoing trial of those involved in Avetyan's murder has opened a window onto the excesses of a tiny ruling class that until now has felt largely untouched by the law. Since the collapse of the Soviet Union in 1991, Armenians -- like many other inhabitants of the old USSR -- have watched as the lion's share of the country's wealth has fallen under the control of a privileged elite. The leading Armenian oligarchs, a group numbering around 40, dominate industries ranging from banking to mining, and that economic edge has translated into privileged political status as well. Just as in Russia and Ukraine, tycoons here have parlayed their wealth into public office -- to an extent that it's often hard to tell where business ends and politics begins.

Though political apathy is widespread in Armenia, the Avetyan case has fueled resentment and anger towards the men who have accumulated vast wealth and influence while much of the country's population remains in dire poverty. But now, thanks to the criminal case surrounding the death of the army doctor, something seems to be changing. After months of public pressure, Hayrapetyan finally submitted his resignation from the legislature in early September, ending his foray into politics. Six of his bodyguards have been arrested in connection with the murder.

After two postponements, the trial formally got underway last month. The defendants, who initially faced lesser charges, have been formally accused on three counts of assault that could result in lengthier prison sentences than the five to ten years of imprisonment they previously faced. Hayrapetyan, known by the nickname "Nemets Rubo," has repeatedly denied responsibility for the actions of his employees. Calls for Hayrapetyan to face trial in the case have gone nowhere.

Armenia's search for stability and democracy since the collapse of the Soviet Union has been difficult. The country achieved its independence just three years after a 1988 earthquake that left upwards of 25,000 dead. No sooner had Armenians embarked upon statehood than they found themselves locked in a debilitating war with neighboring Azerbaijan over the Nagorno-Karabakh region. That war resulted in the closing of the country's borders with Azerbaijan and Turkey, cutting Armenia off from normal trade. These straitened circumstances brought hardship to most Armenians, but to those sufficiently ruthless and well-connected to take advantage, the war economy meant a path toward instant riches. It was then that many of today's tycoons began to build their fortunes.

The culture of oligarch immunity is certainly nothing new. The Avetyan murder has struck a sensitive chord owing to its chilling resemblance to the 2001 incident in which a bodyguard of then-President Robert Kocharyan attacked and killed a man in a bathroom for making a disrespectful remark to the leader. But even then, most Armenians -- whether too apathetic, too scared, or too willing to emigrate -- refrained from mounting an open challenge to the tycoon establishment.

Now, in dramatic contrast, broad swathes of society have shown the will to stand up and resist. In the months following Avetyan's murder, the anti-oligarch protests began to attract attendance from regular citizens who are rarely seen at demonstrations. A candlelight vigil honoring the late doctor saw over 600 people surround the restaurant, which has come to symbolize the broad web of impunity shared by Armenia's tycoons. Police cordoned off the restaurant and clashed with protestors, breaking up demonstrations by force. "I only had one bruise, but some people were beaten," said Tsovinar Nazaryan, an activist and journalist who attended the rally.

But the demonstrators kept coming back. They marched to the Prosecutor's General Office after Avetyan's funeral, chanting "Nemets is a murderer" and "I am Vahe Avetyan." Then a montage of video clips from two press conferences Hayrapetyan gave last year surfaced on YouTube (with English subtitles), showing the tycoon threatening reporters, claiming responsibility for beatings, and confessing to tampering with ballots in an election. "I wouldn't advise people to try to punish me," he says at one point in the video. "Whoever tried it, something terrible happened to them."

Anti-oligarch activism spread outside the country's borders, where the far-flung Armenian diaspora held protests in front of consulates. Online petitions were organized. Street art around the capital demanded that Hayrapetyan be tried in court.

"Many people are sick and tired of their power," said activist Nazaryan. "You can see how violent they are, in their business, in their everyday actions. They're violent to our journalists. They're really dangerous. They don't care. They know they won't be punished, and this is the problem."

This latest series of events represents the first small challenges to the seemingly impregnable edifice of oligarch power that has dominated this country since the collapse of the USSR. Functioning like early twentieth-century robber barons, Armenia's tycoons prefer to be called "businessmen" (though most Armenians tend to refer to them with cartoonish nicknames). The oligarchs drive fleets of flashy vehicles; their Hummers and Rolls Royce's are fitted with custom license plate numbers to simultaneously identify their families and close associates and deter harassment from traffic police.

Their ostentatious mansions multiply, and their business assets grow as they hold the Armenian economy hostage by eliminating competitive markets for everything from mineral water and asphalt to soft drinks. The economic elite flex their power in the political sphere despite a constitutional ban on members of parliament being involved in owning or running businesses. The political parties that have dominated recent elections in the country are closely associated with leading oligarchs who enjoy parliamentary immunity and remain virtually untouchable. According to a recent report by the International Crisis Group, for example, the ruling Republican Party had two dozen wealthy businessmen elected to the ranks of parliament in 2007. The same report notes that oligarchs routinely use their charitable foundations to sponsor concerts or hand out free potatoes in order to secure voter support, though the businessmen deny using charity for the purposes of political leverage.

Take Samvel "Lfik Samo" Aleksanyan, a millionaire with strong ties to the government. A 2003 U.S. State Department cable referred to him as a "semi-criminal" oligarch who "maintains an army of bodyguards" and controls the import of sugar, wheat, and butter into the country.

Dubbed "the Sugar Baron" in local media, Aleksanyan's domination of the industry and ownership in a chain of supermarkets has created the conditions for a series of sugar crises in which prices unpredictably skyrocket. Aleksanyan recently bought and partially destroyed the famed, almost century-old bazaar-style indoor market and national treasure, "Pak Shuka," amid widespread speculation that he intends to turn it into part of his supermarket empire.

Other oligarchs play prominent roles in the lucrative mining industry. Armenia is rich in molybdenum and gold, and that has led to considerable competition among the oligarchs to grab their shares of the resulting profits. National Assembly Chairman Hovik Abrahamyan and member of parliament Tigran Arzakantsyan are both shareholders in one leading mining company. One of the most prominent tycoons linked with mining is former Minister of Environmental Protection Vardan Ayvazyan, who was in charge of regulating large parts of the industry during his stint in government. In September, a U.S. court ordered Ayvazyan to pay $37.5 million in damages to a U.S. mining company that accuses him of corruption relating to his own business interest in the sector. (Ayvazyan has denied all the allegations and rejects the American court's jurisdiction over him.)

Oligarchs are also accused of tampering with elections. Armenian elections have long been plagued by irregularities, reportedly ranging from intimidation to ballot stuffing. Garo Yegnukian, an executive board member at Policy Forum Armenia, a U.S.-based think tank, says that oligarchs play an outsized role in elections: "They're the ones who distribute election bribes, who intimidate, who break people's knees, if they have to."

A U.S. embassy cable leaked in 2009 described business elites as "deeply intertwined with political power and vice versa," each having an incentive to preserve the status quo out of the fear that a regime change could mean an economic redistribution at the "expense of today's oligarchs."

Reports have linked oligarchs to assaults and murders. But their activities have other pernicious effects as well.

The International Crisis Group report pinpointed oligarch benefits from tax and customs advantages as a reason why the government collects only about 19.3 percent of GDP in taxes, compared to a 40 percent average in the European Union. A 2007 International Monetary Fund study reflected this, arguing that despite double digit growth since the beginning of the millennium, Armenia's tax to GDP ratio remains very low.

Prime Minister Tigran Sarsgyan who has previously criticized several ministries within the government for corruption, recently announced that he will head an anti-corruption council, and extended a rare invitation to opposition parties to participate.

"We are not satisfied with the state of the fight against corruption," Sargsyan said, according to local press reports. But graft in Armenia doesn't seem to have seen any significant decline. Over the last five years, Armenia has sharply fallen on Transparency International's Corruption Index for Armenia by 30 places, from a ranking of 99 in 2007 to 129 in 2011.

Analysts predict that the path to economic success in Armenia means eliminating monopolies and minimizing the interference of oligarchs in policymaking; poverty and a high emigration rate (some 70,000 people leave the country every year) compound the problem. As the fallout from the death of an innocent army doctor continues, the Armenian government faces critical choices when it comes to its future and how it chooses to act, if at all, toward those enjoying immunity from the law. But it's clear that, even in the best of cases, reducing the power of the country's tycoons will be a long and arduous process.

Photo by PanARMENIAN Photo/Tigran Mehrabyan

National Security

Air Wars

How defense is playing in the 2012 campaign.

 

Foreign policy may play a small -- if occasionally bizarre and amusing -- role in American elections, but defense spending is a different beast, allowing candidates to blend the best (and worst) of American patriotism with that all-important campaign theme: jobs.

This season, a slew of ads -- many anti-Obama, all anti-Democrat -- are warning that looming defense cuts threaten tens or even hundreds of thousands of jobs, mostly in battleground states it seems. Of course, it was Congress -- Republicans and Democrats alike -- who voted for nearly $1 trillion in mandatory defense spending cuts, with last year's Budget Control Act accounting for about half and the sequester set to begin in January providing the other. But never mind.

For better or worse, Democrats have a few tricks up their sleeves as well, including the shameless use of random veterans to attack their opponents' character. Fortunately, Republicans have a thick skin and a willingness to tar their competitors as anti-American. It all makes for good fun since we're not talking about anything serious like, say, the defense of the nation.

So, as the 2012 election season draws to a close, here are our favorite contributions to political discussion of the military.

GABRIEL BOUYS/AFP/Getty Images

 

 

1. Virginia Is Not for Lovers 

In Virginia's heated Senate race, Republican George Allen has taken aim at Governor Tim Kaine for supporting cuts to defense in a TV ad which asserts that, if elected, Allen will "stop the defense cuts by growing our economy, using our energy resources, and creating jobs." No word on how burning coal would boost defense spending, but fortunately Allen has the backing of conservative Super PAC Crossroads GPS, which produced an ad complete with ominous voice and dark imagery warning that "one million small business jobs" are "at stake" because of those cuts. The figure (repeated in many ads this season) comes from a debunked study written by a George Mason University economics professor -- that was commissioned by defense industry lobbyists. A third ad -- this one from the National Republican Senatorial Committee -- says that the cuts would cost only 200,000 jobs, but it also calls them "Kaine's defense cuts," even though Congress did not offer the Virginia governor a chance to vote on the Budget Control Act.

 

2. Live Free or Die

Mitt Romney has a new radio ad in New Hampshire repeating his oft-touted claim that the U.S. Navy has fewer ships than at any time since 1917, and it does its best to turn Obama's memorable debate quip -- "We also have fewer horses and bayonets" -- against the president: "For Mitt Romney, that's a problem. For President Obama, it's a chance to deliver a punch line." The ad says 3,600 jobs are at stake in New Hampshire, but its most interesting line is a dog-whistle about Obama's supposed rejection of American exceptionalism: "Sure, his flippant remarks insult Mitt Romney, but do they also expose how President Obama views the world -- and America's place in it?" The ad repeats the canard about reversing "Obama's defense cuts," but we have to applaud the use of "flippant," which is a first in our campaign-ad memory.

 

3. Stealthy Attack 

In this presidential campaign, China has figured mostly as that most evil of bogeymen -- the currency manipulator -- and this Romney ad promises the governor will stand up to Beijing on economic policy. It also includes Romney's oft-repeated criticism that China is stealing American ideas, but with a twist: this ad says that's true of fighter jet design, too. The ad shows a pretend-blueprint sketch of what looks like China's J-31 with a line drawn to a similar sketch of an F-35. What's interesting is that the ad may actually be on to something in its suggestion that China has pilfered U.S. stealth technology. In 2009, the F-35 program was hacked, resulting in the loss of sensitive data and requiring a costly revamp of the program's security.

 

4. Indiana's Back 

With approval ratings higher than almost any other demographic in the country, a veteran's word is almost unimpeachable. And that's why this year has shown that deploying veterans in political ads has been an effective tactic. VoteVets.org has a series of ads attacking Republicans in various races around the country, from Virginia to Indiana to Arizona. In one, a veteran of the Iraq and Afghanistan wars, Sam Schultz, of English, Ind. says Republican Senate candidate Richard Mourdock -- probably most famous for his ill-advised comments on rape last month -- voted to stop the bailout of Chrysler and potentially rob veterans of well-paying jobs. Zinger: "I know what it's like to serve with people who have your back, and I can tell you," Schultz says as he tinkers with a small motor outside a garage, "Richard Mourdock doesn't have ours."

 

 

5. Vets on Flake

VoteVets repeats the tactic in Arizona with an ad criticizing Republican Senate candidate Jeff Flake, in which Stephen Lopez of Chandler, Ariz. looks sternly at the camera as he shoots holes in Flake's record on veterans: "He was one of only 12 in Congress to vote against the G.I. Bill, which is putting veterans like me through school." And Flake was one of only three who voted against job training for returning troops, he says. The punch line: "Jeff Flake doesn't deserve my vote or my respect." Ouch.

 

6. Buckeye Defense 

This Romney ad charges that Obama's defense cuts -- again, a pretty serious fudge given their bipartisan origins -- could cost Ohio 20,000 jobs. The interesting question is where would those defense jobs actually be lost? The Lima plant that produces M1 Abrams tanks was already slated to stop production later this decade, since the Army says it has more than enough new tanks. United Technologies facilities in Ohio work on advanced engines for jets like the F-35 Joint Strike Fighter, but that program is going strong (despite cost overruns and schedule delays). Meanwhile, the ad says that Romney will stop the cuts and create 450,000 new jobs for Buckeyes. Defense jobs?

 

 

7. Connecticut Cuts 

Refreshingly, this ad by Connecticut's Linda McMahon, Republican candidate for Senate and wife of World Wrestling Entertainment founder Vince McMahon, rightly blames Congress for creating the sequestration beast. She also lists specific defense contractors in Connecticut that could be hurt if sequestration kicks in. Among these are Sikorsky, maker of the H-60 family of helicopters for the Army, Navy and Air Force, aircraft engine-maker Pratt & Whitney (a United Technologies subsidiary) that provides engines for everything from C-17 cargo planes to fighter jets like the F-35, and finally, the Electric Boat division of General Dynamics that makes nuclear-powered submarines. However, we're not sure where the ad's suggestion that McMahon's Democrat rival, Chris Murphy, supports sequestration comes from. Few politicians want the sequestration to go forward, but Murphy actually voted against the 2011 deal that set it up.

 

 

8. Tommy vs. Tammy 

In this doozy, Wisconsin Senate candidate Tommy Thompson attacks his Democratic opponent, Tammy Baldwin, for hating on troops, 9/11 first responders, and apple pie (ok, maybe not apple pie) while loving Iran. Tommy says Tammy receives support from a "radical pro-Iran group" while Tammy says Tommy invested in companies that do business with Iran. Who to believe!? Well, that radical pro-Iran group is the D.C.-based Council for a Livable World, whose research arm is the Center for Arms Control and Non-Proliferation. Apparently, they are "pro-Iran" because they don't think the country poses an "immediate" nuclear threat to the United States. Tammy did vote against a 2006 bill praising 9/11 first responders because it also gave support to the controversial PATRIOT Act and immigration bills that she opposed. Apparently, the claim that Baldwin is opposed to giving troops body armor has its roots in a failed bill she co-sponsored that would allow conscientious objectors to have their tax dollars spent on non-defense programs