STOLYPIN: Russia’s ‘Panamization’ of politics

STOLYPIN: Russia’s ‘Panamization’ of politics
The Panama Papers help us to understand some central truths about politics in Putin’s Russia.
By Mark Galeotti of New York University April 13, 2016

The ‘Panama Papers’ revealed much about the cynical world of international tax evasion, capital flight and money laundering. But did they tell us much about Russia? In themselves, not really – but what they have done is help us to understand some central truths about politics in Vladimir Putin’s Russia.

The initial accounts focused on “Putin’s billions”, the $2bn held largely through cellist (and presidential chum) Sergei Roldugin. While Putin’s name was on none of the documents, it is impossible not to see his fingerprints on them. However, for all the excitable headlines, there was much less to this story than at first met the eye. First of all, while it provides all kinds of granular details as to how embezzled and “donated” money – if you hand a traffic cop a 5,000 ruble note it is a bribe, it seems, but if you hand over $500,000,000 it’s a “donation” or an “unsecured, unredeemed loan” – is moved and stored, this should not come as a surprise. It certainly didn’t to anyone in Moscow. The thought that the rich and powerful are also corrupt kleptocrats fails to amaze.

Besides which, what was described was hardly unique to Putin’s Russia, but instead fits a pattern visible across post-Soviet Eurasia and beyond, from Africa to Asia, Latin America to the Middle East. In an age of globalized finance, offshore havens and complex financial instruments, inevitably the 21st century kleptocrat has moved on from the suitcase of banknotes secreted in a Swiss vault.

Secondly, “Putin’s billions” were probably not Putin’s, as such. For a man who seems unlikely to be contemplating a post-presidential life, and who can use the fortunes of the country’s oligarchs or the assets of the state as his piggy banks, stashing away another hundred million somewhere seems rather pointless. Instead, these funds are best seen as both the collective assets of a group of powerful figures – if they were Russian gangsters, we’d call it their obshchak, their common slush fund – and also the product of wider processes whereby power is gained and consolidated.

Power, after all, is the true currency of Russia. Patrons offer clients and allies the opportunities to make money, from contracts ripe for embezzlement to rent-seeking opportunities, in return for favours and loyalty. Tribute the clients may pay to those above them are welcome, but often simply reinvested in buying more clients and allies, more power.

“Following the money” is thus also a way of following the power, what really matters. This way, we can understand some recent developments in Russia at least partly in terms of the economy of authority rather than their overt justification.

Negotiable loyalty and conditional patronage

One aspect of Putin’s surprise decision to create a standalone National Guard that has largely been neglected, for example, is the transfer to the new agency, along with the Interior Ministry’s riot cops and security troops, of FGUP Okhrana (the Federal State Unitary Enterprise ‘Guard’).

Okhrana was the commercial private security provider of the Ministry of Internal Affairs (MVD), which rented out the service of police officers from the so-called Extradepartmental Guard (Vnevedomstvennaya okhrana). Okhrana was a generator of income for the ministry. Although in 2014 and 2015 its net profits had been falling slightly, it was still making a little under a billion rubles, or a little over $15mn at today’s rates. While only a small fraction of the MVD’s trillion-ruble budget, at a time of cuts – last year it had to absorb a 10% reduction – it represented a convenient extra revenue stream that, unlike the federal budget allocation, was not restricted to specific uses. In any case, these profits represented only a small portion of the total incomes. Local commands in the cities and regions would also get their cut, and individual officers could supplement their household incomes through moonlighting for Okhrana.

Transferring the corporation to the National Guard not only impoverishes the MVD and provides extra resources to the new agency, it also offers newly promoted National Guard chief Viktor Zolotov the means to build and develop his personal client base through promising and granting access to Okhrana’s budgets, and also the opportunity to use the agency as a virtual state-sanctioned protection racket.

Zolotov, once head of Putin’s security and then a first deputy interior minister, has after all never been his own master. Now, as the head of a federal agency directly reporting to the Kremlin, he for the first time has the real opportunity to build his own power base. Okhrana gives him the wherewithal to buy one.

In a different way, the transfer to Grozny’s control of petrochemicals company Chechenneftekhimprom is best understood as a way of compensating Chechen leader Ramzan Kadyrov for a likely reduction in the headline federal budget subsidy this year. This allows him to continue to maintain his own position by buying off his cronies, and also is intended to maintain and reaffirm his loyalty to Moscow.

Finally, consider this year’s proposed privatizations. Public statements and offer prospectuses notwithstanding, this is nothing to do with refilling the public purse, furthering business efficiency or making a statement about a commitment to the market. Rather, this is a way of rewarding members of the crony capitalist elite for their loyalty, compensating them for losses suffered from sanctions and diverting any disquiets about the direction of policy. Money will be made by the state, yes, but it is unlikely that these deals will really be economically significant, not least given the lack of foreign bidders. Rather, as ever, the money is symbolic of the flows of power and obedience.

Machiavelli once wrote that, “gold will not always get you good soldiers, but good soldiers will always get you gold”. In today’s Russia, as the ‘Panama Papers’ show, while money will not always get you power, power will always get you money – and the important relationships are all about negotiable loyalty and conditional patronage.

Mark Galeotti is Professor of Global Affairs at the SPS Center for Global Affairs, New York University and a Visiting Fellow with the European Council on Foreign Relations. He writes the blog In Moscow’s Shadows ( and tweets as @MarkGaleotti.