Democracy Lab

Putin Declares War on Sleaze

Vladimir Putin is vowing to make a dent in the eternal Russian problem of corruption. Skepticism is warranted.

MOSCOW — A few days ago I stopped by a low-budget beauty salon in downtown Moscow to sample the popular mood. Last week, President Vladimir Putin introduced a bill into the Duma (the Russian parliament) that aims to block top state bureaucrats and their closest relatives from holding money, shares, or bonds abroad. The ladies in the salon were abuzz about the move, enthralled by the notion that officials famous for their roomy villas and aquamarine swimming pools in Miami, the South of France, or Bulgaria were finally facing a reckoning. "Finally he's got his act together!" a middle-aged client, Irina, said of Putin's sally. "I'm sick of reading about [ruling party] United Russia wives spending billions of stolen dollars at foreign resorts." Lena, the hairdresser, denounced one of Putin's own advisers: "Pavel Astakhov keeps his family in Cannes," she declared. "He goes to visit them every weekend while I have to scrape by just to redecorate my apartment." How she knew this privileged information was somewhat irrelevant; in Russia, indeed, the cynical suppositions of the populace all too often lag far behind the grubby reality. The salon customers went on to ponder whether former Minister of Defense Anatoly Serdyukov or ex-Minister of Agriculture Yelena Skrynnik, both currently under investigation, will actually go to jail for embezzling millions of rubles in state funds. (The photo above shows Putin meeting with the newly appointed minister of defense, Sergei Shoigu, after Serdyukov was sacked.)  

Putin's move has served to enflame Russians' smoldering anger over the obvious corruption of the elite. Ordinary Russians have historically obsessed over the division between "us" (ordinary folk) and "them" (the ruling elite). But rarely has the gap inspired as much bile as it does today. Eavesdrop on middle-class Muscovites and you're bound to hear tirades about sleaze at the top. Corrosive state corruption, which experts claim costs the Russian economy some $400 billion a year for the Russian economy, has permeated all levels of Russian society. The chairman of the Audit Chamber, Sergei Stepashin, says that bureaucrats plunder around one trillion rubles ($33 billion) from state purchases every year: "One-fourteenth of the country's budget annually goes into the pockets and offshore accounts of state officials and businessmen affiliated with them," he recently told state news agencies. 

In just the past week there have been scandals at three different ministries. The main oncologist of the Ministry of Health, Valery Chissov, quit after investigators accused his deputy of taking a million-ruble bribe from a commercial company in return for guaranteed state contracts for medical equipment. At the Skolkovo high-tech hub, Russia's answer to Silicon Valley, investigators revealed the embezzlement of $800,000 in development funds and opened a criminal case against the foundation's finance director, Kirill Lugovets. (Police suspect he paid that amount in rent to a building owned by his own parents.) Skolkovo, which once enjoyed the direct patronage of ex-President Dmitri Medvedev, is supposed to be a showcase of transparency and competitiveness; it has even succeeded in establishing a series of collaborations with MIT. But critics say the whole project has a rotten smell to it. In a recent interview, the vice president of the Skolkovo Foundation, Alexander Chernov, admitted that many remain skeptical about the center's future. "Anything initiated by the government immediately generates skepticism," Chernov said. 

Even the Bolshoi Theater, that symbol of Russia's rich cultural legacy, has been drawn into criminal scandals. Soon after an attacker splashed acid on his face, Sergei Filin, the Bolshoi's creative director, told me that he hopes that the Kremlin will make an exemplary effort to investigate his case and show results. Last year he asked both Vladimir Putin and then-president Dmitry Medvedev, the president at the time, to help put an end to the scandalous corruption conflicts tearing the Bolshoi apart, but nothing had been done. "The question is whether, after what happened to me, the authorities will tackle the bigger problems at the theater," Filin said. "If they don't manage to solve anything even now, it makes you wonder what else has to happen in order to get the authorities to react." 

Billions of stolen rubles vanish or "dissolve," as Vladimir Putin put it last week, without a trace. He has promised "intense, tough, and consistent" measures to fight high-level corruption in the bureaucracy. As if to demonstrate his resolve, last Wednesday Putin publicly scolded the minister of energy, Alexander Novak, and the CEO of state hydroelectricity company Rus Hydro, Yevgeny Dod. "You should be fighting with your teeth to recover these funds," Putin told them. "A billion rubles (about $33 million) has been stolen, a billion has been given to a fake firm, a billion has vanished. And you're still investigating, and you sometimes don't think that it's necessary to protect the interests of the company." 

The new campaign aims to change the deeply rooted lifestyle of nearly two million Russian officials: Husbands serve the motherland while their wives live abroad and their children attend the best Western private schools. Only last year, the Russian elite purchased overseas property worth $12 billion abroad (much of which was never declared). Capital flight amounted to more than $60 billion. When the Russian sociologist Olga Kryshtanovskaya recently issued a confidential report saying that the real incomes of leading officials are now around $60,000 dollars a month, members of the ruling United Russia party rebuked her. (Kryshtanovskaya, a long-time member of the party, left it in protest.) "After late year's protests, Putin had to push the elite to make a choice," Kryshtanovskaya told me. "They either had to quit their government jobs or take responsibility for hiding their illegitimate incomes." 

Putin's new anti-corruption law tries to draw a bright red line between two kinds of officials. On one side are the "exemplary patriots" (as the current parlance has it), who plan to earn and spend their money within the borders of Russia. On the other are the despicable non-patriots, who harbor nefarious secret plans to sneak off one day to a comfortable home in a foreign country with good roads, high-quality medical services, and a nicer climate. One of the patriots, Duma Deputy Mikhail Degtyarev, said that "the country will be sealed for Russian officials completely by the end of this year." The 31-year-old Degtyarev confirmed that dozens of Russian officials, including Igor Shuvalov, the deputy chairman of the Russian government, will have to say goodbye to their foreign assets and their multi-million dollar properties abroad -- "or they will have to use their smarts and re-register their property," as he put it. 

Ordinary Russians, who have to pay bribes every time they need surgery or apply for admission to kindergarten for their children, have a hard time believing that any law will stop state bureaucrats from stealing money. After all, hasn't bribery been illegal all along? Yet the public has welcomed the first victims of the campaign from within the ranks of the ruling party. One of United Russia's leaders, deputy Vladimir Pekhtin, quit the chairmanship of the Duma earlier this month after opposition leader and anti-corruption blogger Alexei Navalny revealed that Pekhtin owned $2 million worth of real estate in Miami, Florida. Navalny, who has made himself a figure of considerable popularity with his online crusade against graft, has promised to identify hundreds of other officials who own property overseas. But his contributions to the fight against corruption haven't exactly made him a darling of the government: He is a suspect in one criminal case and under investigation in another (though so far there is no evidence of his guilt in any of them). Stories like his, indeed, suggest that Russia's struggle against sleaze remains an uphill climb.

Photo by ALEXEI NIKOLSKY/AFP/Getty Images

Democracy Lab

Georgia's Political Standoff Deepens

A letter from Tbilisi

TBILISI, Georgia — These days Georgia feels like a dark fairy tale. The castles of the rival protagonists loom portentously over the capital of Tbilisi. On one hill stands the presidential palace, inhabited by Mikheil Saakashvili, who remains there, for the time being, despite the drubbing his party received at the hands of the opposition in last fall's parliamentary election. At night the palace is almost invisible, shrouded in darkness, because the newly elected government of Prime Minister Bidzina Ivanishvili has decided that it's not worth spending taxpayer money on lighting. On the other hill, Ivanishvili's glass home luxuriates in light, as if still celebrating his triumph in the October vote. 

The tension between the two sides' supporters hangs over the capital like a cloud One of Ivanshivili's first actions upon assuming office was to unleash the police on several key officials of Saakashvili's administration, and the two sides have been at loggerheads ever since. Outside the presidential palace, protestors picket in little knots, demanding the resignation of Saakashvili (known to most Georgians simply as "Misha"). His opponents have collected thousands of signatures on a petition urging him to resign now rather than wait until the end of his term next fall. Members of the powerful parliament, now dominated by Ivanishvili's allies, postponed Misha's annual speech and are discussing constitutional amendments to limit presidential powers. Recently Ivanishvili even succeeded in making up with Misha's long-time enemy, the Kremlin -- thus putting an end to the ban that Russia imposed on the import of Georgian wine and mineral water. But even that good news failed to lighten the atmosphere. The party of victors is thirsty for revenge. 

As I walked from ministry to ministry, there seemed to be no end to the bad news. Most of the previous officials have either resigned or been fired. The new ministers blame Saakashvili for erratic reforms -- improving the police but not the prisons, for example, thus filling old penal camps to bursting. "Nearly every family had members in jail," the new defense minister, Irakly Alasania, told me. It turned out that Misha's secret police listened in on the cell phone conversations of important foreign visitors to the country, including journalists. "Was my phone bugged too?" I asked one official, half-joking. He assured me that it was.

The current Minister of Interior Affairs, Irakli Gharibashvili, is a 30-year-old graduate of Pantheon-Sorbonne University in Paris and a former head of Cartu, Ivanishvili's charity foundation. It was the Georgian people who demanded the arrest of Saakashvili's aides, he says. "Every day we receive thousands of people asking us to restore justice," Gharibashvili explained. "We suspect the top elite stole millions of dollars," he assured me. "Soon we'll have some evidence that will surprise you." 

Prime minister Ivanishvili looked calm and self-confident when I visited him recently in his home, a glittering private residence worth over $47 million. Not many Georgians knew what the rich philanthropist even looked like before the day he decided to join the campaign against Saakashvili's party in 2011. They knew only his shimmering palace of glass and steel, an alien space ship plopped down in the middle of Tbilisi's botanical garden. Today the prime minister is not only the richest man in Georgia, but also its most influential. His approval ratings hover around 80 percent. 

I asked Ivanishvili, as soon as we sat down in his spacious private office under a Lucian Freud painting, if he really believed that we journalists covering Georgia for all these years had misread Misha's intensions. After all, the World Bank recognized Saakashvili's anti-corruption reforms as some of the best in the world, not just in the ex-USSR. 

"Don't blame yourself, for the first two or three years even I did not recognize what they truly were," Ivanishvili responded. He told me how he had invested considerable sums in various Saakashvili reform projects, only to discover that they had been turned into money-making mechanisms for Misha's corrupt elite. We went on to discuss the other problems facing Saakashvili's government. How should Georgia pursue its efforts to join NATO and European Union? How can it stay friends with Moscow while luring the Russian-sponsored separatist regions of Abkhazia and South Ossetia back into the Georgian fold? And, above all else, how to create jobs for thousands of unemployed Georgians living in the decrepit villages that were once Soviet collective farms? 

From his gleaming villa, Mr. Ivanishvili donates some $100 million of his personal fortune each year for the restoration of historical buildings and to pay the salaries of Georgian university professors, theater directors, and artists. "The only thing Saakashvili's men did not do to stop us was to shoot at us," Ivanishvili told me as he recalled the campaign. Every morning, he said, he wakes at 5 AM, then does a session of yoga to stay fit and psychologically balanced. I asked if he thought Saakashvili had been stealing money. "There was no corruption at the lower and middle level of bureaucrats, but the top elite's corruption counted hundreds of millions of dollars," he said. 

I can still remember dark winter nights on Georgia's main street, Rustaveli Prospect, a decade ago. Rows of poorly dressed protesters blocked traffic that consisted mainly of unwashed Soviet Ladas. They stood for hours under the rain, demanding jobs and a regular supply of heat and electricity at home. Tourism? Forget about it! Criminal gangs controlled the capital so effectively that even the locals didn't dare to walk outside of their own neighborhoods at night. Policemen carried Kalashnikovs. The only place to have a proper bath with hot water was at Tbilisi's sulfur bathhouses, ancient public spas under dome-shaped roofs. I remember the shy and apologetic smiles of my hospitable hosts in homes with no hot water during those miserable years. All they had to offer, besides the traditional home-made wine, were loaves of dry bread and a few tired-looking apples. 

These days Rustaveli swims in light and comfort. Elegant decorative candelabras and graceful statues of angels playing flutes adorn the spotless avenue. Foreign tourists listen to live music in cozy restaurants. Last year some 4.4 million of them crossed Georgian borders, eager to get a look at this suddenly hip and rapidly developing nation. (The population of the entire country is 4.5 million.) 

But not every part of Georgia benefits from tourism. To get a sense of how ordinary people in the country experience the shifts in power at the top, I stopped in a village with in Imereti region, on the way to Ivanishvili's home town of Chorvila. A big group of men stood around without much to do in the middle of a working afternoon. They informed me -- with a kind of perverse pride in the roundness of the number -- that unemployment in their village amounted to 100 percent. "Ivanishvili made more money than the budget of our country; and he beat Misha, so he should figure out how to create jobs," said Guram, a middle-aged man with a potbelly. Ivanishvili's new rural development fund, worth about $606 million, has promised to give low-interest loans to farmers and revive Georgia's culture of growing organic vegetables and fruit. 

Saakshvili seemed distinctly reluctant to embrace Ivanishvili's efforts to revive Georgian agriculture when I met with him at his residence for an interview. At one point as we spoke, the president paused to turn up the television news, which was broadcasting a segment about his opening of a new ski resort. Tourism has always been one of Saakashvili's biggest passions. He is eager to cite his own reforms as the reason for the increase in visitors, which stood at only 120,000 a year when he took office. Now Ivanishvili is shifting priorities. "They're suspending hold five new hotel projects in [the province of] Ajaria, and they've cut the region's budget threefold," Saakashvili told me. He claims that economic growth has fallen from six percent to zero since the new government took office: "Ivanishvili said that the first year is going to be difficult, but I don't understand why economic growth has to stop altogether." 

It should be said that Saakashvili has also done his part to inflame the tensions. Last month, just as thousands of Georgians were gathering on Tbilisi's main square to demand his resignation, the president gave a speech at the Parliamentary Assembly of the Council of Europe in which he assailed Ivanishvili's government for arresting his party colleagues. Lawrence Sheets of the International Crisis Group offers another image that neatly describes the current situation. The "cohabitation" of the mutually hostile leaders of Georgia, he says, "resembles a forced marriage of two increasingly hostile adversaries locked in a cell." 

Sadly, shortly after I left Tbilisi, the tensions boiled into open conflict, when a crowd of Ivanishvili supporters attacked a group of Misha partisans, resulting in a melee that left several wounded. The Ivanishvili activists are now threatening to surround both the president's residence, turning him into a virtual prisoner in his palace. As things stand now, this is one fairy tale that doesn't seem likely to have a happy ending.

Photo by VANO SHLAMOV/AFP/Getty Images