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“It Could Get Much Worse”

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Karen Dawisha, author of Putin’s Kleptocracy, on what the Panama Papers have revealed about the Russian President’s rule and how the West should best deal with his regime.

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© REUTERS/Sergei Karpukhin

Financial transactions among Vladimir Putin’s friends have proven so far to be the most exciting revelations from the Panama Papers. Did you learn anything new? First of all, we now have more evidence of what Putin’s friends are doing. But what was interesting to me was the following: Mossack Fonseca only created Sergei Roldugin’s, the cellist’s, offshore company and account; it was “filled” in the British Virgin Islands by a subsidiary of a major Russian state bank, the Russian Commercial Bank (Cyprus) Ltd. That indicated that somebody authorized the giving of Russian state money from the Russian budget. So it is not just that Putins friend got an offshore account – I mean, nobody, not even Putin, is able to keep track of all his friend’s accounts (laughs). But what he could and should be keeping track of is where two billion dollars of Russian budget money went – at a time when major banks have to be bailed out. That money is then missing to pay state employees on time. It doesn’t look good. I mean, really, that to me was the biggest confirmation of my research.

Is it conceivable that in a hierarchically-structured government or regime like Putins, the president would not have known? Well, I think the actual situation is likely to be as follows – and I haven’t seen the actual documents yet, but I’ve talked to some of the journalists who are working on the stories. Evidently they confirmed that Roldugin was either an unwilling or an unwitting holder of this account. There are emails and documents that suggest they were trying to find him, that they were trying to get his signature. In short, he was not that compliant. That signals that the great friendship between Putin and Roldugin is perhaps more complicated than it seems. Sure, Roldugin gets his musical academy, he gets state support, Putin turns up at his concerts. And in return Roldugin doesnt look too closely at the details of the documents he’s signing.

Two billion dollars is a lot of money. What is it needed for? Clearly, Roldugin doesn’t need this money to buy instruments – as he’s now claiming. And I don’t think that we can say that Putin needs money, specific amounts of money isn’t the currency that Putin is most interested in. He is most interested in what authorizing the movement of money gives him, which is control over other people’s financial doings. He allows them to move money abroad, he allows them to have mansions in London, or the South of France, or Miami, or Los Angeles. But they have to be loyal to him and the moment they aren’t for whatever reason, he can expose these transactions as illegal, he can make it difficult for them to continue as we saw in the last few months with another former buddy, Vladimir Yakunin, the head of the Russian Railways, who resigned over the allegations that his money bought his son and his grandson residences in London. That certainly is not the reason that he was asked to step down. He was probably asked to step down for an act of political disloyalty and then Putin had the ability to compromise him.

In short: Russia’s President is buying loyalty. Yes – and don’t mistake what I am going to say, but thank God the reason they are loyal to him is their own venality and greed. An ideologically motived regime would be much more dangerous to the West. I think Yakunin was indeed ideologically motivated. He represented the far right, you know, not fascist, but a kind of uber-religious, conservative nationalism. Putin is much more practical, much more tactical; for him it is really about him.

Putin experienced a meteoric rise, from a subordinate in the St. Petersburg municipality to President of mighty Russia. In the West this has often been explained as a result of the reforms of the 1990s going wrong, while you’ve shown in your book how deliberately the country was turned into a mafia state … I wouldn’t say “mafia state” if this is supposed to mean that Putin is product or being controlled by or in cahoots with the mafia. He had dealings with them, but he did not rise from them, and his primary purpose is not to serve them. If we were to look at the corruption that has been the feature of his regime, I would say actually it is probably more the case that it was brought about by the KGB people around him, who were highly motivated by their shared distaste and disdain for the corrupt Communist Party people and for the hypocrisy of the Soviet ideology. They were more interested in opening up to the West, trying to weaken the West, using the West’s own vulnerabilities. The West’s own vulnerabilities are corruption, which they have studied and learned from and are in alignment with. But they always were in favor of privatization, they never saw the communist system as strong. What is interesting is that all these people who came to power early on, including Putin, went into business, and they quickly controlled the privatization process. Their major purpose was to prevent democrats, the pro-western liberal intelligentsia, from exercising control over privatization, and the pro-western intelligentsia had no idea what they were doing …

… while the KGB people already knew the system? Exactly. If you look at Yegor Gaidar, for example, who was a friend of mine, he learned about Western capitalism by reading Milton Friedman at night under the covers. The KGB learned about Western capitalism by running lots of offshore accounts in the 1980s. They were already doing it, they were already moving money around to support national liberation movements, communist parties abroad, and so forth. They had the infrastructure already. For instance, two of the major bankers who were in Vienna in the late 1980s are well known to Putin and are still active. They are on the board of Gazprom now. So they have been there from the very beginning.

Was it the idea from the start to build an authoritarian regime ruled by Putin in perpetuity? That was one of the big discoveries that I made when writing my book. I had believed that I would find that somewhere in the mid 2000s that they couldn’t bear the thought of Putin leaving, and so they came up with all kinds of schemes. But what I found was, first, that the original 2000 election of Putin was absolutely stolen. And he won barely, by only 52 percent. There were many ways in which votes were made up, including by increasing the numbers of people who were registered to vote by a million between the December 1999 Duma elections and the presidential election four months later. Even the official statisticians said this was something that could not be supported by demographic data. So, there clearly was a plan to steal the elections, but then what I also found was, secondly, a very detailed document that came from the Putin camp – and remember, he was acting President before that prime minister, so he was in government – which said that after he was elected every single department in the presidential administration would have a public or open function and a closed or secrete function. I mean, this is a plan!

… to create a state that protects this “lets-get-rich-together” club? Right, and they believed without a strong centralized state, Russia, a country of eleven time zones, would collapse. So they wanted to reinstate that centrality of a strong, centralized state. And that’s their ideology.

But doesn’t the kleptocratic character of the regime undermine just that? I agree completely. There are reports that the number of labor actions are up. And most of these actions are occurring because of non-payment of wages, so there are lots of cases including major factories like AvtoVAZ, for example, which are three months in arrears. So this can’t be sustained. The question is, What will the regime do? And here is the really bad news. The establishment announced in April of a new 400,000-strong national guard that will go down to small town/village level. It’s an indication that they will use force to repress labor, to repress anyone. They are already repressing the opposition, now they repress the people who are supposedly in the core of the Putin Project. The person they put in charge, Viktor Zolotov, goes back with Putin a long way, back to St. Petersburg in the 1990s, and has been Putin’s personal bodyguard. So this looks like a praetorian guard, established to protect Putin personally. Zolotov was named as the head despite the fact that the law establishing the national guard had yet to go through the Duma. Already there’s a video on the web that was taken secretly near Moscow, showing that the new units are already doing crowd control training exercises with water cannons, machine guns on top of armored vehicles – really bad stuff. Apparently they have permission to shoot without warning.

How should the international community deal with this kind of Russia? Many US sanctions are aimed at people around Putin – do they work? Well, personally I prefer sanctions to putting more troops in the Baltic states. I mean, we can’t just pretend that nothing is going on, so if we accept that something is going on and we should do something to respond, I think that it is important to decide how the Putin regime is primarily organized, motivated, and how it is threatening to us. Of course it is not to say that there isn’t a huge threat in Ukraine and dangerous actions taken in other places, but I do think that the biggest threat to the West is the corruption in our own system. And I’m not saying that this will stop it, but I daresay that we wouldn’t have had all these discussions about offshore accounts if those individuals forming the backbone of the regime hadn’t been sanctioned. They are also signaling: The US government knows a lot about Putin. A lot.

Do we need more stringent laws against corruption and money laundering? You have to keep in mind that US sanctions and EU sanctions are different. EU sanctions can be challenged in courts of law, so they have to be much more targeted and much more linked to a specific action, for instance as punishment for Russian action in Ukraine. American sanctions are not subject to review by any court of law or by Congress, which makes them much bolder and nontransparent. So for example, when a person under sanction wants to access his account at – pick a bank – he will go there and try to transfer funds and the funds will simply not be there. Because at some point the US Treasury saw that these funds were coming through the US, so they just grabbed them. And the person won’t receive any reassurance that he will ever see them again. And yes, the West as a group needs to do something to tighten up its own rules and regulations. Until then, American sanctions in particular can be quite biting.

How do you see the regime evolve? I think it could get much worse. The logic of the regime is such that it doesn’t have any deep legitimacy. As long as people get paid and as long as they believe that their standard of living will improve, it will be difficult to challenge. But if those things continue to be eroded then I don’t think there is any deep legitimacy. You know, even if they are boosting Putin’s approval rate by ten or twenty percent, they are still impressive when compared with support figures for Western leaders. But this doesn’t necessarily translate into support of state and government. So while eighty percent say they support Putin, eighty percent also say that corruption is a major problem.

Does that mean that Putin is excluded from the accusation of corruption? Well, it is very difficult to poll in an authoritarian regime, and when people see the political opposition being pilloried or killed for attacking Putin, they may not speak quite so openly to a pollster. There is an additional cultural notion: Gleb Pavlovsky, who was Putin’s head of PR from the late 1990s onward, said that his task in 1999 was to reawaken in the Russian people the habit of obedience – something that is supported by the Orthodox Church under Putin. The management of his image is aiming at constantly impressing upon the Russian people that he personally is the embodiment of power. To criticize him means to criticize something that is good, that is divine, somebody who loves you. So he can go on television and say about the Panama Papers: “I’m not in them.”

Read more in the Berlin Policy Journal App – May/June 2016 issue.

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