Local Businessman, the FSB, and Corruption

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The lawlessness of the Russian 90s is over. Gone are the days when two former wrestlers, now government agents, appear at your apartment dressed in leather jackets, extort money by beating you to a pulp, and then have you stumble out of an open window to your death. The dynamic has changed: in Putin’s Russia, a businessman is invited to a respectful government office, meets with a smartly dressed bureaucrat, sips on a hot cup of tea, and either strikes a deal, going home safely, or goes to jail first and is defenestrated later.

On the surface, Russia’s lawlessness has been replaced by a systemic and civilized corruption. Still, if asked, there is the expectation that the individual will cede to government interests. If not, the transgressor faces serious consequences—jail, threats on family, and appropriation of assets by government forces.

The extent to which Russian government bureaucracy perpetuates corruption is clearly depicted in the video interviews of Alexei Shmatko, a businessman who was engaged in the local gas trade in Russia. In particular, the videos highlight the one agency that stands above all others: the FSB.

The FSB controls business activities in Russia through a complex system of practices, the most common of which is extorting businesses for money/kickbacks.  When a businessman refuses to surrender his assets, or to “share” as it is called, it is not unusual for the FSB to dismantle and/or seize the company.  This was Shamtko’s fate when he refused to share with the FSB.

Shmatko worked for Gazprom until 2007—a state-owned gas conglomerate that not only has interests in natural resources, but also has far reaching corporate tentacles abroad.  After a successful career at Gazprom, Shmatko returned to his hometown Penza, Russia to start his own local gas distribution. When the company became successful, Gazprom approached with a potentially lucrative contract.  Good news travels fast and Shmatko was called into the office of a local FSB official. Undoubtedly, the local security officers saw an easy opportunity for enrichment through Shmatko’s new Gazprom contract.

And this is where his troubles began.

According to Shmatko, he was ordered to hand over half of his company to the FSB by appointing a nominal head whom they would chose. Shmatko who did not want to split the profits, refused to cooperate. He was arrested on a complex series of allegedly false charges and thrown in prison.

In prison, the security officers, who were trained in tried and true Stalinist methods, attempted to beat out a confession. When force failed, they used psychological means. According to Shmatko, he was told that if he did not cooperate, his wife would just disappear. (It is noteworthy that the local Penza FSB followed the same practices used by the Moscow FSB to obtain confessions. The Russian security forces continue to operate according to standard procedure developed during the Stalinist period by the NKVD—the KGB’s predecessor).

What happened next raises some questions about Shmatko’s innocence but in no way absolves the FSB.

Fearing for his family’s wellbeing Shamtko signed a confession of guilt, admitting to what he alleges were false charges of embezzling state funds. At this point, his family intervened, reportedly paying the judge the equivalent of a $30,000 bribe. Shmatko was released. (How and why the judge was able to circumvent the gaze of the FSB is unclear.)

Next, Shmatko fled to Cyprus, a favorite hot spot for Russians seeking to launder money. By his own admission, he relaxed and enjoyed the Mediterranean sunshine for six months. Eventually, the FSB, who had issued an international warrant for his arrest, caught up with him and he fled again. Today he is in England or more precisely, Wales and is seeking asylum in the U.K., where Western institutions provide safe harbor for disgraced Russians who, for a multitude of reasons, played the game and lost.

Is Shmatko an honest businessman robbed by the FSB? In the opinion of this author, his previous career at Gazprom and the ease with which he was able to leave prison as well as Russia certainly raises questions about his complete innocence.

But of greater importance in the Shmatko saga, is the example of how, in the Russian kleptocracy, the government survives through predatory, entrenched, and systematic thieving of society. The FSB plays a leading role in institutionalized corruption.

This is a world, spread over 11 time zones, where being successful in business relies less on talent than on the ability to stomach pervasive corruption. Social status and personal safety require embracing and perpetuating a mafia-like system. The state relies on you for kickbacks and you rely on the state for protection. It is a vicious cycle, with no innocent parties.