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At first glance, the arrest of prison official Oleg Korshunov looks like a real blow in efforts to crack down on corruption among Russian high officials.
After all, in Russia, headline-grabbing arrests of officials on corruption charges generally have much more to do with politics than with the fight against corruption. A prime example of this is the current trial of former minister of economic development Alexei Ulyukayev. He was arrested on bribery charges, but most commentators believe he fell foul of high-level infighting in the Russian elite. If a mid-level or regional bureaucrat is arrested on corruption charges, most observers see it as only a sign that resources are being redistributed.
The arrest in September of Korshunov, deputy director of Russia’s Federal Penitentiary Service (FSIN), on embezzlement charges looks different. But this case may not be as much of an exception as it seems.
Korshunov was widely known in financial and bureaucratic circles by the nickname “Pukhly” (Pudgy). He was so blatant about his activities that many were surprised it took so long for him to be arrested. The case against him could have been a textbook example of the fight against corruption, were it not for two circumstances. First, how did Korshunov manage to rise to such a senior position, given his background and his history? Second, will anything change in the penitentiary system following his arrest?
The answers to the questions tell us a lot about the Russian state system in which Korshunov made his career.
Oleg Korshunov had previously served as an “adviser” to the senator in Russia’s upper chamber of parliament, the Federation Council, representing Ryazan Region, southeast of Moscow. The lowly title conceals a person of great influence. Many men and women in Russia’s ministries, parliament, official agencies, and state-controlled banks are listed as being “advisers.”
Some of these advisers are former officials who have been suspected of illegal activity and given the less prominent title of adviser. Others are just biding their time until retirement, or have retired but still reap the benefits of past achievements and old connections, or are taking a pause in their careers before they resume an active role.
Frequently an “adviser” is the person who holds the purse strings or makes clever financial transactions on behalf of the boss.
And yet, formally at least, getting a job at a state agency means undergoing a tight vetting process, including a background check by the Federal Security Service (FSB). Of course, Oleg Korshunov and his associates went through this process, as did, for example, the four managers at the Federal Agency for Special Construction (Spetsstroy) who were arrested over the summer.
To understand how people can jump this hurdle, I turned to a man who has carried out these vetting processes and agreed to talk anonymously. When I asked what enabled an obviously dubious person to get through, he replied, “the magical power of money.” And he said that no one would be punished for allowing Korshunov and others to get through, as the record would be altered to retrospectively clear them of any wrongdoing.
The important truth here is that Korshunov was not an aberration in the system, merely someone who operated a bit too blatantly.
Korshunov is generally regarded as having been a “financial operator.” Prior to joining the FSIN, he was a run-of-the-mill financial manager, then headed a small bank, then moved closer to a source of budget funds. For a while, he was even the deputy chairman of the management board of the Interregional Fund of Presidential Programs (then headed by Igor Zubov, who is currently a state secretary and a deputy minister of the interior).
Nothing in this official biography explains the vast wealth he accumulated (Korshunov was reported to have been arrested at his yacht club). But by being a financial operator, he would have worked outside the legal realm. Another man playing this role was Alexander Perepelichny, who recently died in London, allegedly by poisoning. Perepelichny provided off-the-record banking services.
A “financial operator” is an individual with financial acumen and connections, as well as a certain lack of scruples, whose job is to convert resources—including budget funds—into cash. Often, he also “manages money” for officials. What can they do with their cash, their bribes? They can’t just deposit the money at a major Russian bank. They used to be able to open bank accounts abroad, but now regulations are much stricter. Wives and children can’t always be trusted. And they do need to spend some of their money in Russia.
Financial operators take the money and invest it as they see fit. Every month they make interest payments, of around 2 or 3 percent. A civil servant might give the operator $5 million—without any sort of written receipt. Then, the operator brings back interest in cash, which the civil servant lives off of in Russia. The financial operator holds the money. If he makes a mistake, he is jailed—or “eliminated,” like Perepelichny. If the operator is good, he builds up his own fortune and his career, if he needs it.
Perepelichny reportedly managed money for the top brass of the tax inspectorate, but lost the money and fled to London. However, going abroad is useless in such situations. The official whose money was lost must find the operator and deal with him or risk being seen as weak, as a “nobody.”
An official who is unhappy with his financial operator can get him jailed. Naturally, the operator doesn’t manage money for just one person. He has several clients, who often know about one another, and if one of them puts him in jail, all of them lose their money. Will the others blame the one who put their operator behind bars? Oddly enough—no.
The “owner” of the money doesn’t need anyone’s approval to punish his money man. It is assumed that the other clients will go after their own money themselves—after all, the operator should still have some assets left. They are expected to use their connections in the penitentiary system, the FSB, and other agencies to solve their own problems, because they took their own risks.
Very little will change with Oleg Korshunov’s departure. The case against him relates to just one specific issue. Investigators will work on it, and perhaps uncover one or two other obvious issues: abuses during the construction of the Kresty-2 prison in St. Petersburg, which Korshunov oversaw, or another case. The specific incidents will be investigated, but no one will take on the prison system itself. No investigators will be allowed to set their sights too high.
But why preserve Russia’s medieval penitentiary system with its cruel treatment of inmates? Why not dismantle it completely and replace it with a normal, contemporary service? I put these naive questions to a retired law enforcement officer who wanted to remain anonymous.
The officer countered that other Russian ministries—of education, health, or transportation—were no better, and that their record of embezzlement of state funds was just as bad.
As for “the billionaire Korshunov,” the officer reckons that he will serve some time and then “everything will be OK,” he will get back much of what he owned. “Eventually, he may even get back his yachts, apartments, watches, and cash. The prison system will hang on to these for a bit, but then return them. There will probably be a lawsuit, but he’ll figure something out.” It is to Korshunov’s advantage, the officer said, that those who are supposed to investigate him probably have yachts of their own.
Korshunov, he predicted, would probably manage to get himself released on parole. “He will manage.” The system, in other words, is still stronger than the attempts to punish illegality.
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