Publication: Prism Volume: 7 Issue: 6

By Elena Dikun

On June 6 Russian Prime Minister Mikhail Kasyanov happily announced that Vladimir Putin had agreed to postpone the “adjustments” to the structure of the government for another couple of weeks. Kasyanov made his request during his visit to Poland; furthermore, in a gross violation of protocol, he enlisted the help of the world’s media to do so. Speculation began in Moscow as to what had incited Kasyanov to make his appeal to the president from abroad. Why did he not wait until he got home, when he could lodge his request face-to-face with the head of state?


The most engrossing reading matter the Russian establishment could find during May were the transcripts of private conversations. And, in a blatant breach of good manners, read them they did. They had only just become acquainted with the content of telephone calls from Aleksandr Voloshin’s Kremlin office, when German journalists brought out another smash hit. The influential publications Focus and Der Spiegel published the minutes of confidential talks between U.S. President George W. Bush and German Chancellor Gerhard Schroeder. The two leaders agreed to withhold financial aid from the Russians until they stopped hiding their own money offshore and adopted western rules of fair play. The Russian president duly described the publications as provocative, but did not cast doubt on their authenticity. According to our sources, Putin found out about Bush’s conversation with Schroeder rather earlier than the editors of Focus and Der Spiegel–via his own channels, naturally. So if the publications were being provocative, it was only in the sense that they intended to provoke the Russian president into curbing economic crime.

Taking the hint, on May 21–the day after the minutes of the talks appeared in the press–Putin summoned the heads of his administration and government leaders to his office. He stated the task facing them briefly and bluntly: There was no point hoping for western aid any longer, and foreign debt had to be paid off. They therefore had to remove the “blubber” that export companies had amassed, he explained, looking meaningfully at Vice Premier Aleksei Kudrin. Then he called for the law against money laundering–which legislators were already debating–to be pushed through the Duma as quickly as possible. In late July Putin is due to travel to Genoa for a G-7 summit. He would be ill-advised to turn up at the meeting with this select group of leaders from the world’s leading industrial countries without this document. Otherwise he will be plagued by reproaches to the effect that his country appeases money-launderers. Raising the issue of this bill, Putin again fixed his eye on Kudrin.

Why was the president focusing so particularly on the finance minister? Kudrin is the one responsible for removing the “blubber” and for ensuring the passage of the antimoneylaundering law. For almost a year now, Kudrin has been wrestling with the oil barons to persuade them to pay their taxes in full, but there is no sign that he has had much success. Moreover, he heads the government commission for protective measures in foreign trade, which is supposed to counteract the illegal export of capital, and he is also charged with setting up a center to fight against the laundering of money of illicit origin. Thus Bush and Schroeder’s dissatisfaction is directed first and foremost at Kudrin as the man responsible for implementing the demands of the international community.

It is impossible to say with any certainty whether Putin intended to indicate to his finance minister and vice premier that he had failed in his responsibilities, or whether he wanted to spur him into further action. But just two days after this meeting with the head of state, articles appeared simultaneously in three Moscow newspapers suggesting that the finance minister’s days in the government were numbered, and ORT presenter Mikhail Leontyev, accurately gauging the mood in the president’s administration, laid into the finance ministry’s draft bill to fight money laundering.

The articles in Focus and Der Spiegel, the president’s meeting, the defamation of Kudrin in the media: Were these pure coincidences, or links in the same chain?


For almost a year now, the Finance Ministry has been waging a grueling war with the oil companies in an effort to secure extra money from them by abolishing internal prices and reviewing levels of export duty on oil. Thus far the ministry is not winning the war. In July of last year First Deputy Finance Minister Sergei Ignatiev submitted a memo accusing a number of oil companies of tax evasion. Sibneft, for example, pays eight times less tax per ton than Surgutneftegaz, and TNK 3.3 times less. In hot pursuit of them, the finance minister summoned the tax officials and ordered them to root out all the methods–both legal and illegal–the oil bosses used to conceal their incomes. At the time Putin gave Kudrin his full support.

The next blow against the oil barons was leveled in October. One hundred and two legislators from the State Duma sent an open letter to the president demanding that he “curb the oil predators,” who were systematically evading tax on their profits. Informed observers think that the letter could have been arranged by its recipient himself–that is, the president–or at least by the government. At any rate, Putin immediately attached a stern resolution to the deputies’ letter, addressed to the heads of the fiscal bodies: “Your inaction thus far is rather surprising.” In other words, it was high time to get to grips with the oil tycoons. After this dressing-down, the tax officials quickly atoned for their guilt, submitting to Kudrin a memo stating that the total oil profits concealed from the tax authorities were in fact many times greater than Ignatiev’s calculations.

But then prosecutors raided the St. Petersburg branch of Promstroibank–which is headed by one of Putin’s old friends, Vladimir Kogan, and which also counts Kudrin as a client–and carried out searches backed up by armed men wearing masks. At the time our sources believed that the law enforcers were tipped off by the highly aggrieved oil barons and their lobbyists in the power structures. In other words, it was being clearly demonstrated to the president and his team of Petersburg economists that there was an answer to the pressure they were exerting. The clouds gathering over the oil barons gradually began to lift, particularly given that they now had Prime Minister Mikhail Kasyanov on their side. Observant officials note, for example, that the government apparatus draws up the necessary paperwork at lightning speed when oil duty falls, but when duty is raised the papers lie around for up to a week. The apparatus is run by Igor Shuvalov, who is the prime minister’s man.

Furthermore, oil bosses have come up with the idea of stripping the cabinet of the right to set export duties: The corresponding law is already being debated in the Duma, where the influence of the oil lobby is very great and where the Finance Ministry has almost no chance of winning.

Being in charge of the government’s most contentious project, Kudrin has naturally gained a reputation as an official who has fallen out with the entire business community, and who does not pass for a liberal. Aside from the oil companies, he has also offended the metal industry, and gas industry tycoons complain about him to the president.


Yet it is unlikely that Putin will blame Kudrin for the unsuccessful campaign against the oil companies. In the first place, Kudrin and Putin are personal friends. Second, the Finance Ministry faced the oil barons alone: Other government structures and the prime minister himself either did nothing to help or actively hindered the operation, a fact of which the president is well aware. With this in mind, when reminding the finance minister of those presidential orders which had not been carried out, Putin could in fact have been targeting his remarks at those who actively sabotaged these orders. Indirect confirmation of this is provided by Kudrin’s actions after the president’s comments. Ignoring the predictions that he was about to be fired, Kudrin convened his commission for protective measures in foreign trade and managed to push through an increase in export duty on natural gas from 5 to 10 percent. Shots were also fired across the bows of other exporters, and Sibneft’s offices were raided by investigators.

The oil war has exacerbated the already awkward relations between Kudrin and Kasyanov. To put it mildly, the prime minister is not overly fond of this vice-premier, seeing him as a potential rival. Neither is Kudrin particularly favored by the president’s chief of staff–and Kasyanov’s patron–Aleksandr Voloshin, for whom the arrival of the Petersburg contingent in the government meant that he forfeited his role as chief mover in the economy; he recently lamented to his own close circle that “the president hangs on to Kudrin’s every word.”

Informed observers in the White House relate how Kasyanov and Voloshin planned to remove Kudrin under the guise of government restructuring. Just before his visit to Poland, the prime minister reported to the president with his suggestions for his future vice premiers. Kasyanov named three people he wanted to see as his deputies: Viktor Khristenko, Valentina Matvienko and Igor Shuvalov. “I agree to Khristienko and Matvienko; but not Shuvalov,” replied Putin. “Give me some more names, Mikhail Mikhailovich.” Kasyanov lowered his eyes and said nothing. “Well, you’ve got Gref, or Kudrin,” prompted the president, clearly concerned that these people were not in Kasyanov’s list. The prime minister thought for a moment and then sighed, “You decide on the third name, Vladimir Vladimirovich.” “Oh, I’ll decide all right,” promised Putin darkly, ending the meeting.

Goodness knows what Kasyanov made of this promise. But while the president is considering his decision, there have been more developments in the sophisticated PR-campaign against Kudrin. There are rumors, for example, that the ministry of finance is refusing to fund reform of the judiciary–rumors designed to drive a wedge between Kudrin and the man behind the reforms, Dmitry Kozak, if not the president himself. Now Kudrin keeps having to explain that this is all a fabrication. In short, there are no holds barred in this covert war; anything they do brings dividends.

Elena Dikun is a political columnist with Obshchaya Gazeta.