Panama Papers confirm Putin is the latest in a long line of Russian kleptocrats.

Russia Was a Kleptocracy Long Before Putin

Russia Was a Kleptocracy Long Before Putin

Military analysis.
April 5 2016 5:20 PM

Russia’s Long History of Corruption

The Panama Papers merely confirm what we’ve long suspected about Putin.

russian leaders.
Vladimir Putin, Leonid Brezhnev, and Boris Yeltsin.

Photo illustration by Sofya Levina. Images by Alexander Zemlianichenko/Getty Images, Staff/Getty Images and Vitaly Armand/Getty Images.

Revelations from the Panama Papers, one of the great financial scandals of our time, have focused mainly on the law firm that carved the offshore shell firms, the major banks that turned an eye, and of course the politicians—143 of them, including 12 former or current leaders—who dodged taxes by exploiting the arrangement.

Fred Kaplan Fred Kaplan

But one question remains as yet unanswered: Where did some of these politicians get such vast sums of money to begin with? In particular, how did Russian President Vladimir Putin—who isn’t explicitly named in the papers but whose cronies tellingly are—come up with $2 billion?

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The papers—leaked to a vast consortium of journalists—provide tangible evidence of longstanding rumors that Putin has been running a kleptocracy, skimming bundles of cash from state-run enterprises and stashing it away in foreign banks. But Putin has only pushed—to new and daring heights—a practice that Russian rulers have been indulging in for many decades.

At least since the reign of Leonid Brezhnev in the 1970s, when the state had turned sclerotic and its ideology had gone bankrupt, the main—perhaps the only—reason for joining the Russian government was to get a piece of the country’s resources. Back then, this meant a nice apartment in the center of Moscow, a lakeside dacha on the outskirts, and an entrance pass to the exclusive stores selling Western goods and decent food.

In the 1990s, when Boris Yeltsin dismantled the Soviet Union and privatized industries, many lowly government managers became suddenly wealthy private owners—and their chums in the state bureaucracies demanded a share.

When I was the Boston Globe’s Moscow bureau chief around this time, Russian businessmen told me that, in order to obtain a license for exporting oil or metals, they had to pay the Ministry of Foreign Economic Relations a bribe worth 5 percent of the contract’s value. These bribes didn’t finance the upkeep of the ministry; they lined the pockets of the minister and his top deputies.

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In 1993, Yeltsin fired the minister as part of a much-ballyhooed anti-corruption campaign. But the often-drunk president waxed and waned in his enthusiasm, as he did with so many other laudable efforts, and the bribery soon resumed. The deposed minister, Sergei Glazyev, later became a leader of Rodina (meaning Fatherland), a right-wing nationalist political party, and he now serves as one of Putin’s economic advisers. (At one point in his wending political career, Glazyev adopted an anti-corruption platform himself, claiming that his ministry had been overtaken by criminal gangs.)

But again, it isn’t just Putin’s crowd that raids the treasury. Prime Minister Dmitri Medvedev, during his brief spell as Russian president, was a champion of good relations with the West and active partner in President Obama’s “reset” policy (which led to a substantial nuclear arms reduction treaty). Nonetheless, he too grabbed a nice piece of the pie. When he was still president, for instance, he proudly posed for pictures crouching next to his $200,000 stereo system. Several years ago, an audio manufacturer I know told me that he’d sold a pair of his top speakers—retailing for $100,000—to the Russian minister of defense. It’s unlikely that these officials bought this stuff with the savings from their government salaries.

It is no coincidence that most of the political leaders cited in the Panama Papers occupy positions of power in states with authoritarian rule and enormous cash flows—for instance, Ukraine, Saudi Arabia, China, Pakistan, and Qatar. The rulers don’t want to spread the wealth widely, lest it foster the rise of counter-elites and the decline of their own power. So they sprinkle it discreetly, in exchange for loyalty and, in some cases, a share of the subsequent proceeds. (The one Western democracy on the list, Iceland, is a puzzling anomaly, and its prime minister, Sigmundur David Gunnlaugsson, will likely be the only leader on the list to resign over the scandal.)

Occasionally in these countries, the leaders lose control of their beneficiaries. In the early days of the Yeltsin era, this is what happened with one of the new Russian oligarchs, a provincial theater director and black marketeer-turned-banker named Vladimir Gusinsky. Gusinsky had previously struck up a friendship with a politician named Yuri Luzhkov, and when Luzhkov became Moscow’s mayor, he funneled all the city’s accounts—and those of enterprises that did business with the city—to Gusinsky’s bank. But Gusinsky (whom I interviewed several times as a Moscow reporter) tried to do good with his new wealth, modeling himself after early 20th-century American philanthropists, such as Rockefeller, Guggenheim, and Carnegie. He created the first independent newspaper (Segodnya, meaning Today), the first independent TV station (NTV, one of whose shows, Kukli, meaning Puppets, was more savagely satirical than any American TV show at the time), and several magazines. When fascists within the Russian parliament went after Yeltsin in 1993, Gusinsky’s media sided with the president. But the following year, when his reporters started criticizing Yeltsin for his savage war in Chechnya, the security services physically threatened Gusinsky, who soon fled the country. His bank and most of his media outlets were taken over by Gazprom, the state-owned gas company, which either absorbed them into state media or sold them.

Gusinsky’s fate was meant, in part, as a lesson. It seems to have been taken to heart by those on the receiving end of the Kremlin’s largesse, and the money, it’s now clear, continues to flow.

One more thing

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