Davis Center, Harvard University

November 2018

Ilya Zaslavskiy

Outline

• Broader overview of roots

• Russia’s domestic corruption spill over to the West

• Further reading

• Recommendations

With Putin it all started in St. Pete

• Putin's 1990's corrupt deals in St.

Petersburg region

• Right from the outset used

western accounts and enablers

• These early schemes were

replicated later on throughout

Russia and then into Europe

Petersburg organized crime as the root of the system

Key difference with the Cold War

• The Cold War distinction between "their" camp and "our" camp

blurred completely – now shades of grey, not black and white

picture.

• The Kremlin started a creeping non-military war against Western

institutions and values at least from 2004

• It did not get noticed because it was waged on totally new fronts:

disinformation via new channels such as the internet, and in

cultural and educational spheres.

• But most importantly, the war was waged through completely

new avenues of business and with unprecedented concentrated

capital from petro-dollars that was easily disguised through

anonymous offshore accounts and/or seemingly private businesses

of oligarchs.

Western media: lack of capacity

• Global trends: digitalization, social media, distrust

due to partisanship, apathy, disinterest in and lack of

funds for investigative reporting

• Specifically related to Russia: less country

correspondents, no permanent Russian translators,

experts, lawyers, editorial and other censorship for

commercial, political and libel reasons, BBC/RFERL

vs RT/Sputnik

• Kremlin network exploits these weaknesses:

disinformation, entertaining news with fluid anti-

Western ideology, cooptation, acquisition, libel laws

and other intimidation, infiltration, self-censorship

Useful narratives through confessions and special

interests

• NRA

• Anti-gay traditionalists

• Far Right and Far Left

• Orthodox Church

• Orthodox Judaism/Chabad

• Cultural and educational spheres

Further reference

kleptocracyinitiative.org

underminers.info

imrussia.org

A. Participation in the inner circle and involvement with the regime in Russia

1. History of business relations of oligarchs and their associates with the officials and informal

leaders propagating wars against Georgia and Ukraine or high-level representatives of the military

industrial complex and security services who facilitated military conflicts that infringe on NATO’s

security

2. History of business relations of oligarchs and their associates with organized criminal groups in

Eurasia or involvement in criminal incidents.

3. Participation in grand corruption projects or questionable contracts/deals funded by the state.

4. Cover up of corrupt activity in Russia by Kremlin in exchange for subversive activity.

5. Facilitation of the Kremlin’s infringement on democratic processes such as elections, takeover

of independent press and control of internet.

B. Subversive activity in the West

6. Involvement in illegal trade operations with the help of Russian security services.

7. Cooperation between oligarchs and Russian officials to advance cooptation and subversion of

Western political elites.

8. Documented contracts or co-optation of western dignitaries, politicians, celebrities or

audit/due diligence entities for propaganda, reputation laundering or other clearly subversive goals

useful to the Kremlin and its kleptocratic networks.

9. Any deliberate subversive activity of oligarchs against Western law enforcement, security

services, tax authorities, due diligence or other legal or governance processes.

10. Possessing offshore companies and accounts with evidence of criminality.

What can the U.S. Government do?

• Acknowledge that new updated containment strategy is urgently

needed

• FBI sits on piles of information

• Tax breaks and other incentives for investigative journalism,

Russian organized crime/economy experts

• Modernize RFERL/stop infiltration

• Proactive cyber operations

• Oil corruption tax

• Step up people-to-people contacts and engage Russian diaspora

• NED for the US? Invest into US exchanges with post-Soviet

periphery

Broader recommendations for all western governments

and societies

Competition, security, governance over gains

Counter with info/principles & oil corruption tax

Use sanctions/exposure wider and wiser

Enhance freedom of speech, investigative press

Some M&A/offshore accounts will need to be checked

How to

contain

Russian

corrupt

influence?

!

• It is all about our vs their norms, values and practices

• Thus we have to (re)-discover our democratic norms

• Democracy imperfect but precious, not granted

• Objective truth and difference exist, esp. in outcomes

izaslavskiy@icloud.com

@izaslavskiy

BACK UP SLIDES

Gazprom and Rosneft early consolidation

• Sibur: from Goldovsky Bank Rossiya to

Shamalov

• Severneft: start of Yukos affair

• Sibneft: first major overpayment $13.7bn

• Rosukrenergo: case of Ukraine and Hungary

• How much do you think Nemtsov and Milov

estimated the loss of Russian budget?

Nord Stream 2

• With the help of the Spanish prosecution files and the work of German newspapers,

Russian investigative journalists uncovered complicated corruption schemes around

the plant and its links with the Vyborg shipbuilding plant in Russia, another asset

controlled by Putin and his cronies.

• Other overlaps/implications: anti-trust investigation, cooptation of German elites

and split of EU structures, disinformation on energy supply/demand and alternative

sources

• In Germany, the security services and law-

enforcement failed to prevent major money

laundering and mafia activity around a shipbuilding

plant Nordic Yards (previously Wadan Yards) in the

electoral district of Chancellor Angela Merkel.

• This wharf passed into the hands of various Russian

officials and criminals through obscure offshore

operations. In 2008-16 it was controlled by Igor

Yusufov, a Putin insider who was previously

minister of energy and a Gazprom board member,

and his son Vitaly Yusufov, the head of the Nord

Stream 1 office in Moscow.

TNK-BP $30bn sale to Rosneft

• 2003-2008: TNK-BP set up: technology and know

how transfer

• 2008-2009: harassment and ousting of BP by

oligarchs and FSB blessed by the Kremlin

• 2010-2011: Arctic deal and BP’s cooptation

• 2012-2013: $60bn deal

• 2013 onwards: purchase of strategic assets and

influence in the west by five Putin’s oligarchs

• 2018: Vekselberg gets on US sanctions lists

TNK-BP Game

Corruption team (oligarchs, FSB,

other RF gov’t agencies)

BP/Western governments’ team

response

2008-2013:

1. How do you oust BP?

2. How do you structure a deal with

BP and with oligarchs?

1. How do you respond?

2. How do you cooperate or not with

those oligarchs and their

investments into energy in the

West?

Balkans

http://www.csd.bg/artShow.php?id=18114

CSD findings

• These experts have found that Russian companies, many of them state-

owned or state-controlled, have invested close to €2.5 billion over the past

decade in the four countries covered in the study.

• The capture of the region’s oil and gas sectors by Russian state-owned and

ostensibly “private” firms has been noted as a particular problem. The

reports also look at Russia’s engagement in the region’s banking, mining,

pharmaceutical, and real estate sectors.

• The effect on regional attitudes is clear: when Gazprom charges Balkan

citizens more than Germans to stay warm, it is no wonder that many in the

Balkans believe that democracy has not delivered prosperity.

• Serbia: slowdown of reforms, debt, spill over effect into other industries

• Macedonia: South Stream card, investment, sabotage, Sintez, Lukoil

• Bosnia and Hercegovina: South Stream, investment, debt, Lukoil,

Gazporm NIS, Republika Srpska

• Montenegro: KAP, investment, real estate, attempted coup, Lukoil

https://www.cipe.org/newsroom/cipe-experts-discuss-effects-governance-

gaps-corrosive-capital-balkan-countries/

Other useful studies