Publication: Prism Volume: 2 Issue: 4

Thievery and the Russian Military Budget

by Stanislav Lunev

On December 6 of last year, in one of its last sessions, the outgoing membership of the Russian parliament’s lower house, the State Duma, approved the Russian government’s defense budget request for a little over 80 trillion rubles for the new year. (1) In addition, in spite of an 88.5 trillion ruble budget deficit, the lame-duck Russian legislators increased Russia’s defense spending in 1996 by an additional 3.5 trillion rubles over the amount the government had requested.

The legislators decided on this increase, influenced by numerous statements in the press and by politicians on the eve of the December parliamentary elections about hunger in the ranks of the Army and extreme financial and material shortages. According to statements in the press, the Army was unable to pay soldiers’ salaries in November 1995 and, in the previous September, no one in the armed forces got his paycheck on time. In remote garrisons, there was no pay for two or three months at a time and there was no money even to pay for servicemen’s funerals. Soldiers received only 20 grams of meat instead of the 200 grams they were supposed to get and monetary compensation for the missing food was not paid for several months. Russian pilots were flying only a tenth of the training missions they were supposed to complete and scientific and technical development projects were either canceled or stopped.

But in the opinion of Duma deputy Sergei Glotov, the defense budget, even after it was increased, "did not permit the armed forces to guarantee the country’s national security in an acceptable manner." (2)

It is worth noting that the Russian government’s defense budget request was 78.9 trillion rubles, of which 77.1 trillion (a little less than 20 billion dollars) was earmarked for the maintenance and organizational development of the Russian armed forces; 12.7 trillion rubles were requested for new weapons systems, 5.8 trillion for military scientific and technical research and development, and the military budget bill envisaged significant funds for improving the living conditions of the Russian armed forces, and most of all, for salaries and food supplies for Russian servicemen.

If one takes this into account, then the figures cited above are significant, and even with a significant increase in the tempo of inflation, should be able to cover the costs of maintaining the Russian armed forces over the coming year. But in the last few years, people have noticed some strange things going on in the financing of the Russian army. In particular, money already earmarked by the state budget for defense is held up in the process of being transferred to the Defense Ministry’s account, and is again delayed on its way to the troops. In both cases, these delays range from a few weeks to two to three months. According to Ministry representatives, the Defense Ministry has nothing to do with these delays, "is keeping close tabs" on the transferring of money, and is taking "harsh measures" in each case that money is delayed, "in those military units which are serving in commercial banks." (3)

On November 23, 1995, General Vasily Vorobiev was removed by presidential decree from the position of head of the Russian Defense Ministry’s Main Directorate of the Military Budget and Finance. According to the president’s press secretary, Sergei Medvedev, General Vorobiev was fired because he did not carry out the decisions of the government and was responsible for the delays in financing construction work, food purchases, and electricity payments. Medvedev also noted that "government auditing agencies have, on several occasions, drawn our attention to General Vorobiev’s personal responsibility for the fact that servicemen and civilian Defense Ministry employees have not received their salaries for several months," and that "military district commanders had, on several occasions, criticized General Vorobiev’s order and mechanism for financing the troops." (4)

The presidential decree, the press secretary stressed, was signed on the basis of documents presented by Defense Minister Pavel Grachev, and "were no surprise, either to Russian soldiers, or to General Vorobiev himself."

The Russian press, however, had another version. According to a report in Komsomolskaya pravda, Gen. Vorobiev’s resignation was "a complete surprise" to workers in his department. Obviously, the decision to remove Vorobiev was made during Yeltsin’s meeting with Defense Minister Pavel Grachev at the Central Clinical Hospital where he was staying at the time. Nevertheless, Col. Gen. Vorobiev went, that very day, with the defense minister to the Russian-Ukrainian negotiations in Sochi.

In the General Staff, the newspaper continued, people said that the general and financial expert had successfully overcome the resistance of First Vice Premier Anatoly Chubais and Finance Minister Vladimir Panskov, and had been able to increase the salaries of Army and Navy officers. General Vorobiev was probably "not without sin;" very large sums passed through his hands. But he continued to be regarded by many army officers as someone who was looking out for their material situation. One of the generals of the Defense Ministry’s Main Directorate of the Military Budget and Finance said that after Vorobiev, at least two or three of his successors would "burn" too. (5)

And according to a report in the magazine Novoye Vremya, citing reliable sources in the Russian Defense Ministry, the presidential decree was a complete surprise, not only to officials in the Defense Ministry’s central apparatus, but even to Defense Minister Pavel Grachev himself. The magazine reported that, after being told by Yeltsin that Vorobiev was being removed during his meeting with Yeltsin in the Central Clinical Hospital, Grachev "jumped to Vorobiev’s defense, painting him, in the most vivid colors, as a fighter for the army’s interests, and trying to persuade the head of state that schemers in the executive branch were responsible for such charges." The newspaper said that Yeltsin then acquainted Grachev, one by one, with facts and documents incriminating Vorobiev that had been presented to him by the investigative organs of the presidential apparatus, the government, and the special services. (6)

The magazine did not have any information as to the content of these documents, but the military’s chief financial officer has been suspected of machinations for more than three years. During this period, there have been dozens of articles in the Russian press about the "military" and "military-financial mafia" and about the large-scale abuses involving money set aside for the military’s needs. General Vorobiev’s resignation, at times, seemed inevitable. But Vorobiev, confident of the support of Grachev, never deigned to explain himself to the press, and to questions from members of parliament, replied that charges of corruption were all malicious slanders.

In 1993, sensational stories appeared in the Russian press about how the "military-financial mafia" was manipulating money from the military budget and that huge financial sums, sent by the Defense Ministry through the Central Bank to the troops, disappeared, on several occasions, from the country’s military leadership’s field of vision. For example, a sum large enough to pay the salaries of all the soldiers in any one of Russia’s military districts disappeared. General Vorobiev categorically denied the existence of a "military-financial mafia" and explained that the delays in paying servicemen’s salaries were due to the sluggishness of the country’s banking system.

But in 1994 and 1995, the scale of the machinations rapidly increased. It was no longer just remote garrisons which suffered from delays in the payment of salaries; now even officers and generals of the Defense Ministry’s central apparatus and the General Staff experienced were affected. It was also no longer a matter of delays in the payment of a few million rubles, but hundreds of millions and even billions of rubles each month. And if one takes into account that in Russia, the monthly interest rate in commercial banks is 10 to 30 percent a month, then it is possible to imagine how many millions and billions of rubles were pocketed by the people who deposited soldiers’ salaries in banks at interest for one to three months.

Naturally, there were also other ways to speculate with military funds. For example, after the sale of the property of the liquidated Western Group of Forces in Poland, tens of millions of Polish zlotys were withdrawn from an account in a field [military] institution of the Central Bank of Russia, at General Vorobiev’s orders. This money was converted and sent to the Western Group of Forces in Germany. There, part of the money was changed into German marks and deposited into the accounts of Russian soldiers in Germany, but most of the money was sent to Belgium and deposited into the account of a joint Russian-Belgian enterprise having absolutely nothing to do with the Russian army.

Moreover, after the liquidation of the Warsaw Pact, huge stores of Soviet weapons, property, and fuel left in Bulgaria were inherited by the Russian Defense Ministry. These stores were sold by Russian military finance experts to Bulgaria for $20.6 million. According to Decree No. 33 of the President of the Russian Federation, of January 24, 1992, all these funds should have been transferred to a hard-currency account in the Russian Foreign Trade Bank. But, with the knowledge of the Russian military’s chief financial officer, they were transferred instead to an unknown account in the Deutsche Bank in Germany.

The Moscow magazine notes that when, after the session of the Russian Security Council on January 25, 1995, Boris Yeltsin showed the Defense Minister the so-called "Bulgarian documents," Pavel Grachev was left almost speechless but was nevertheless able to save his chief military financial officer. In addition, legends had been circulating in the corridors of the Defense Ministry for a long time, not only about Vorobiev’s two opulent dachas recently built in the most prestigious areas near Moscow, but about the enormous estate which had been acquired by General Vorobiev a little further away, on the Mediterranean island of Cyprus. These legends, it seems, were supported by something very real.

In this connection, Novoye Vremya was puzzled by how it was possible that, although the Russian law-enforcement agencies and special services had kept General Vorobiev under observation for years, it took until last November to dismiss him. The question, of course, is a correct one, but not for the present Russian Federation, where punishment of someone known to be a criminal is decided, not in a court of law, but by a decree of the country’s leading officials. General Burlakov, for example, who stole flagrantly in Germany when he was the commander of Russian troops in that country, felt protected by the present defense minister until the day the president was presented with a heap of documents incriminating him.

But in the case of General Vorobiev, it was the chief of the Russian Cabinet of Ministers whose weighty word finally prevailed against him. After Viktor Chernomyrdin figured out the reasons for the massive delays in payments to servicemen and the military-industrial complex, his patience towards the general, who was criticizing the government, ran out, and he gave the president documents on the machinations of his chief military financial officer. It is possible that the dealing of this blow was also motivated by the Russian premier’s purely political goals, since, at a meeting with the senior leadership of the armed forces, held on November 15 of last year, Chernomyrdin promised the military to pay all back salaries, but, in initiating the dismissal of Vorobiev, stated that many failures in the financing of the army depended, not so much on the government, but on the military leadership at the highest level.

It is worth noting that freeing the army from its mafioso military-financial structure strengthens Chernomyrdin’s position among Russian military men. Nevertheless, what has taken place can be called a fight of purely local significance, since, beneath the surface, but already quite actively at the highest echelon of Russia’s military and political leadership, a battle is being waged for a much higher post–the post of defense minister of the Russian Federation. Grachev remains the apple of Yeltsin’s eye while the head of the Cabinet of Ministers is forced to put up with an odious and very unpopular figure in his own administration. This cannot go on forever.

As regards the so-called "military money," the battle for it will continue as long as this regime of excess continues. The government and the military oligarchy will fight over this money, which is completely sufficient to feed the troops, so that they can get a piece of the money intended to feed the soldiers, and divert it for their own personal enrichment. Naturally, after the dismissal of the chief military financial officer from his post, financial officers in shoulderboards will be forced to behave much more cautiously, but there will be nothing to stop the government officials who have access to this money from manipulating Defense Ministry funds to enrich both themselves and their patrons in the country’s highest echelons.

As regards the Russian armed forces, until the country’s next political campaign, they, just as before, will have to decide their financial problems independently, asking for money to feed the soldiers and salaries for the officers as if it were charity, continuing to develop farms and "commercial troops"–a new phenomenon. They will have to do this to preserve for the present Russian regime what is still left of what was once a powerful and modern army. Why it should do so is a deeply psychological question, which requires a separate explanation.

Stanislav Lunev is a former Colonel in Soviet Military Intelligence [GRU].

Translated by Mark Eckert