MOSCOW BLOG: Russia's anti-graft drive is not being reported

By bne IntelliNews December 3, 2012

bne -

A major anti-corruption campaign is underway in Russia. Yet despite making graft the defining issue of the Russian story, the western press is vigorously ignoring the campaign.

At the start of November, President Vladimir Putin fired the defence minister, Anatoly Serdyukov, after an investigation uncovered RUB3bn ($97m) worth of stealing from a state-owned military contractor Oboronservice. The scandal has rapidly expanded - a deputy minister has since been arrested and the sums involved are at RUB10bn at last count.

And this story is not an isolated one. Another investigation led to the public expose of former agricultural minister Yelena Skrynnik, who is the subject another investigation involving $16m of missing money. And the home of the CEO of state-owned telecommunications company Rostelecom was raided by police in a third investigation.

Serdyukov's sacking caught the international press' attention thanks to the sex angle: Serdyukov was found in the apartment of "a blonde director of a defence procurement agency," reported The Times.

Tom Parfitt of the Telegraph wrote: "The fact the alleged affair was leaked suggested the then defence minister may have angered his father-in-law, Viktor Zubkov, who is the powerful chairman of state energy giant Gazprom. Mr Zubkov, who is close to Mr Putin, is thought to be angry about the treatment of his daughter Yulia, Mr Serdyukov's estranged wife."

Kremlin machinations make a good story and Serdyukov was clearly having an affair, but that is not enough to get sacked in Russia. Even Putin is widely believed to have not only left his wife but has had a son by former gymnast Alina Kabayeva. Moreover, none of the reports in any of the international papers could offer a single shred of evidence to support their "power games" theory other than a couple that quoted unnamed websites - hardly the most credible source.

The BBC's Steve Rosenburg also went with the power struggle angle, but was honest enough to question whether Putin fired the minister to send a signal the Kremlin is serious about battling corruption. "In the byzantine world of Russian politics, it is difficult to say. But one thing is certain: for Vladimir Putin, sacking a loyal minister is out of character," he said.

In the context of the flood of anti-corruption actions over the last month, the most likely explanation is that this story is what it says on the tin: the Kremlin has launched a major crackdown on corruption.

However, the international press is unlikely to go there until it is blindingly obvious. It doesn't fit the narrative they have built up around Russia and ignore anything that clashes with the "authoritarian cabal of KGB crooks" line that is the meat and potatoes of Russia reporting.

A particularly egregious example of this selective Russia bashing came up just in the last week with an op-ed in the New York Times by Masha Gessen, one of Russia's most outspoken critics and the author of "Putin: The Man Without A Face," who complained loudly about the lack of coverage of a prison riot in the industrial town of Chelyabinsk, which she claims is being ignored by the Russian press. "Our Chelyabinsk correspondent was able to learn precious little, facing panicked relatives and the rumor mill on one side and stonewalling officials on the other," wrote Gessen.

The piece was run on the Johnson Russia List, the premier forum for Russia watchers, with a note from David Johnson asking his readers to verify if it was actually the case that the story was being ignored. Sarah Lindemann-Komarova, a Russian resident, replied: "Obviously I cannot attest to the reliability of the information [that Russian radio is] providing, but for the last two days the Chelyabinsk riots have been a top news story and included information on the prisoner complaints that matched those presented by Gessen. Thus, at a minimum Gessen's headline is inaccurate, the protest is being reported."

Lindemann-Komarova went on to refer to other comments Gessen has made in public during the promotion of her book earlier this year: "There are enough inadequacies in this fragile democracy, there is no need to make them up... The issue Gessen raised for me is, does lying to western audiences to make things sound worse help? I think it is not only dangerous to increase the risk of losing credibility for the cause of true reform, but dangerous because it sets a precedent where the truth becomes irrelevant and/or a victim to some sketchily conceived 'end'."

Maybe more pertinent is the fact that Gessen chose to report on what is a relatively minor prison riot (albeit with some nasty details that cannot be condoned if true), but ignored (at least in the NYT) the Serdyukov story.

To be fair, the NYT reporter Andrew Krammer who did write up the dismissal did by far the best job: he actually got a quote from a reputable analyst on the power struggle angle as well as most of the personal details in a perfectly respectable piece. Where the NYT falls down is that they have done none of the context of the anti-corruption drive or other related stories, which leaves the reader with the same old impression: Russia is run by a cabal of spies who operate out of self interest only.

At this point, I should say that there is no disputing the fact that corruption is a huge problem for Russia or that the government is guilty as accused in many of these respects. And bne has been critical of all these flaws. But where is the "balance" and "objectivity" that the western press prides itself on? It is the international press that has made corruption such a key issue, so they should be all over this story in all its gory detail.

Banks fill the void

This one-sided criticism of the Kremlin not only starts to ring hollow, but increasingly there is a gap opening up between what is reported in the press and what those actually working in and with Russia believe.

For their part, the investment banks have been left to do the work the press should be doing. There has been a string of notes from the leading analysts in the last few days picking up on the gathering anti-corruption momentum. "I want to highlight a strong flow of anti-corruption newsflow this month, which I sense might have not been properly highlighted at least in the western press while its important in terms of trying to get the sense of what is happening on the ground," Anton Korytsko, an analyst with Verno Capital, said in a note that he sent out to clients at the end of November. He went on to copy another note issued by Morgan Stanley that was released a day earlier, also informing clients of the building momentum of the anti-corruption drive.

A day later on November 29, Renaissance Capital also released a note entitled "Russian utilities: out with corruption", which laid out the results of an audit carried out at the power distribution company MRSK undertaken on the orders of Deputy Prime Minister Arkady Dvorkovich. "According to Vedomosti, the audit committee revealed several large purchasing and servicing orders that were allocated to companies affiliated with MRKC management, and suspected kickback schemes in the company. Dvorkovich ordered that the facts be checked and - if they were confirmed - asked the company to 'make staffing decisions at the corporate level'."

These notes in themselves should have triggered someone to write the story - "Investment bankers see anti-corruption drive building in Russia".

Korytsko reminds his readers of the dismissal of the defence minister on the back of the Oboronservice corruption scandal and also the raid on the home of Rostelecom's Provotorov, which caused the stock to tank the day the news broke. He then goes on to list several other events that were also picked up by Morgan Stanley in a note the same day:

• Duma passed new regulation, which will more strictly monitor incomes vs expenses of all government reps - this initiative has been pushed by Medvedev back in March and it was finally approved last Friday.

• CEO of MRSK Center was dismissed today [October 29] on the back of the noise related to possible wrongdoings in the procurement function of the Co. There are noises around the potential fraud case related to the former Minister of Agriculture [Yelena Skrynnik who was called in by the Interior Ministry as a witness in a criminal investigation into a $16 million fraud at the ministry.] Big state-owned TV channel had a programme last night about her in that context...

• General Director of RosCosmos has stepped down on the back of the Glonass fraud scandal.

• Head of Rosavtodor was dismissed with investigations related to the potential misuse of the federal road construction budget ongoing.

• Investigations related to budget misallocation at APEC 2012 are ongoing - first arrest has happened this month.

• Head of the Contractual Department of the Moscow Property Management Department has been caught getting a bribe earlier this week.

"This makes for a total of almost 10 corruption-related events, many involving senior government reps as well as one important Duma anti-corruption initiative," wrote Korytsko. "I have been truly captivated by all the investigations and seriously wonder whether these could be a reflection of government initiative to clean things up a bit in order to make Russia more attractive for investment, which is the pre-requirement for sustainable growth. I know that all of this could be mainly noise from local press, but firings and arrests have taken place so it's not purely noise for sure. Perhaps perception of Russia is indeed worse than reality, after all..."

And all this news is just from November. As bne has been reporting all year, we see the anti-corruption drive building from the launch of the campaign by then president Dmitry Medvedev in 2008 (another story that has barely been reported) through to Putin's attempts to institutionalise anti-corruption in December 2011. Putin forbade all state-owned enterprises from signing contracts with counterparties where the ultimate beneficial owners were unidentified (ie. they are the wives of the CEO of the state company). A raft of state-owned companies from the power sector subsequently broke 40% to 60% of their contracts as a result of this rule.

Gessen rounded off her NYT op-ed with the comment: "Russia is a profoundly atomized society. Its only potential information unifier is federal television. TV reporters might have been able to extract answers from prison officials, but after showing some footage of the protest they chose not to pursue the story. As it is, no one in Russia ever really knows what is happening 2,000 miles away or on the floor above."

The point is that exactly the same comments apply to the people that live 5,000 kilometres and more away in London and New York. The only "potential information unifier" is the international press, but it has also chosen "not to pursue the story" in exactly the way it claims their Russian colleagues are doing. Indeed, things are worse, as the Russian reporters are reporting the story and the international press is either ignoring the newsflow or inventing things for the sake of a good headline.

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