Publication: Monitor Volume: 6 Issue: 155

The Russian Defense Ministry leadership may be on the verge of taking a new series of debilitating blows, as military prosecutors pursue an investigation allegedly implicating four senior generals in what could be a massive embezzlement case. Details of the investigation remain sketchy, but various Russian sources have reported in recent days that the head of the Defense Ministry’s Finance Department, General Georgy Oliynik, together with the department’s accountant, General Yevgeny Datsko, and two department divisional heads, Generals Anatoly Vorobiev and Leonid Gerasimenko, are all under suspicion of embezzlement. A spokesman for the Military Prosecutor’s Office, Sergei Ushakov, confirmed earlier this week that the case had indeed been opened against the four generals. He also said that the investigation is now in its fifth month. None of the generals in question has yet been charged, and all are continuing in their current jobs.

Russian sources indicate that the amount of money apparently missing from Defense Ministry accounts is in the area of US$450 million. According to Nezavisimaya gazeta, the money is said to have disappeared in the execution of a complex funds transfer scheme–one which took place in 1995-1996–under which the Russian Defense Ministry was to acquire unspecified “material-technical valuables” from an equally unspecified Ukrainian company. The deal reportedly involved the British-based company United Energy International Ltd., the Russian natural gas monopoly Gazprom, and two Russian commercial banks–Imperial Bank and the National Reserve Bank. According to Nezavisimaya gazeta and other sources, documents from the Russian Defense Ministry apparently show no evidence of the Russian military having received deliveries of military material from Ukraine in return for the payment.

One of the many unanswered questions is how Oliynik, who joined the Defense Ministry’s Finance Department only in October of 1996, could have been involved in the deal under which payments were made in 1995-1996. That fact apparently led one Russian military analyst to speculate that information about the case had been deliberately leaked to the press by Oliynik’s foes in the Defense Ministry who hope to see him dismissed (Moscow Times, August 5; Sapa-AFP, August 8; Reuters, August 7).

Indeed, news of the investigation comes at a delicate time for the military leadership. A row over competing military reform plans between Russian Defense Minister Igor Sergeev and General Staff chief Anatoly Kvashnin–Moscow’s two most senior military officers–erupted in public early last month. The unseemly wrangle compelled President Vladimir Putin to make peace between the two men on the eve of his departure for a high-profile visit to Asia. More important, the clash between Sergeev and Kvashnin has apparently driven Putin and the leadership of his powerful Security Council to make a series of decisions on issues related to military reform and personnel they probably would have preferred to consider at a later date. This general hubbub atop the Defense Ministry is also believed to be behind the firing late last month of six other top generals from the ministry’s staff. Moscow observers suggested that the dismissals weakened Sergeev and could be a prelude to his own forced departure (see the Monitor, July 13, 17, August 1, 4).

But the embezzlement investigation, should it ultimately result in charges, could have deeper implications. For one, it might prove to be a major humiliation for a military leadership which has complained incessantly about insufficient defense funding–including that for its troops in the field in Chechnya. At a time when many generals are still riding high for what some in Russia see as their “success” in the Caucasus, the embezzlement case could also refocus attention once again on the corruption that continues to run rampant in the Russian officer corps. This potential weakening of the military leadership, in turn, could help Putin to establish firm “civilian control” (in fact, control by the intelligence establishment) over the armed forces. It could also help the Russian president in the event that he decides to launch–as some Russian press reports have suggested he is prepared to do–a major military restructuring plan involving significant new reductions in military manpower. Military leaders are likely to oppose a radical reform of this sort, but their objections will be less effective if the current Defense Ministry leadership is tainted by a major corruption scandal.