RUSSIAN WARS:

Russias Biggest Bureaucratic, Corporate and Media Conflicts of 2013

Report by: The Stanislav Belkovsky Foundation (the SBF) Moscow 2013

Contents:
Introduction. The internal wars of the elite in the third year of the second perestroika The conflict around Medvedevs government and the onset of a shadow battle for the post of a potential successor in 2018 Serdyukovs case in progress All-around attack on Yakunin and the attempt to replace the executive management of JSC Russian Railways The fate of the Skolkovo Innovation Centre and Skolkovo Foundation The persecution of banks following the change of management at the Central Bank of Russia Early mayoral elections in Moscow. Navalnys new role The Magnitsky Act, the Magnitsky List and William Browder General conclusions

The main internal conflicts and wars of the Russian elite in 2013 once again confirm that the so-called power vertical is a mere propagandistic illusion. What we have in todays Russia is more of a power horizontal an undefined cluster of decision-making centers that arise (or exist) in any point of space in Russia where critical financial resources merge (join or unite) with critical power resources. These conclusions are best demonstrated by the most prominent Russian wars of the soon-to-be-over 2013. Some of the wars or conflicts to be described had actually started (or had been initiated) in 2012; they, however, reached the stage of their public development and involvement in political decision-making mostly in 2013.

Introduction. The internal wars of the elite in the third year of the second perestroika
It was in the summer of 2010 that the authors of this report had issued their first warning to the country and the society saying that Russia is abour to enter the second perestroika a prolonged period of political and social turbulence whose main features are the following: the insurmountable alienation of societys most active members from power; growing disappointment of the elites by the political and economic system that cradled them, fed them and made them who they were. Basically, it meant that Putins Russia was to cross the same very line that had been crossed by the USSR during Gorbachevs rule in the late 1980s. Of course, this did not necessarily mean yet another collapse of the state (though such possibility existed). However, the changes for Russia, its life and the functioning of its political structure were inevitable and at times rather drastic. We had warned that the second perestroika will bring, among other things: more frequent protests among active members of society the so-called dvizhukha, or buzz (the term will probably become a common word to be used without literal translation - like perestroika, sputnik, pogrom, apparatchiki, siloviki, etc.);

 the aggravation of internal conflicts among the elite that will become more acute and intense than ever; the fight for influence and recources among key players (both individual and collective) of the ruling political and economic elite. The onset of the second perestroika can roughly be dated as December 2011 it was the time when large Russian cities, but most importantly Moscow, the capital of Russia, saw the unfolding of mass peaceful protests against the falsification of State Duma elections that took place on December 4th. The mass-meeting on Bolotnaya Square (December 10, 2011) numbered approximately 50,000 participants; around 100,000 people joined the protest on Academician Sakharov Avenue on December 24th. These were record numbers not only for Putins presidential spell in modern Russian history but also for the most part of postSoviet history after 1991. Although the intensity and numbers of subsequent protests fluctuated, and the excitement and enthusiasm of protestants occasionally gave place to apathy and disappointment, the class of Educated Russian Citizens (ERCs) who were the main driving force of these protests unambiguously expressed their negative attitude towards the existing political and economic system, and especially towards: the system of manipulative elections where results are more often than not pre-determined and real competition preventively smothered in non-political (coercive or similar) ways; the economy of Cuts, Kickbacks and Bribery total corruption as a basic principle for making all important and crucial economic choices as well as the ideological and technological foundation for implementing such choices.

liberalized the legislation on political parties which led to the emergence of 70 new parties on the Russian political arena in 2012-2013 (there are all in all 77 parties now, including 7 old parties which were registered before 2012);

reinstalled the system of direct elections for federal subjects of Russia that was abolished during the respective anti-federal reform in 2004-2005 (the official grounds for that was the act of terrorism in Beslan in early September 2004);

legalized the participation of the opposition and in the wider sense those politicians and public figures who call themselves the opponents of the ruling party in elections at various levels, including the municipal elections;

proclaimed that the fight with corruption was one of the main priorities for the authorities.

All these reforms were announced in the last presidential address of the former Head of the State Dmitry Medvedev (Prime Minister since May 2012) to the Parliament of Russia in December 2011. The program was undoubtedly approved by Vladimir Putin who at the time was preparing himself for the return to Kremlin and basically continued to be implemented after his re-election for President in May 2012. At the same time the Kremlin decided to offset their compromise with the ERCs by toughening some other policies in various spheres and areas of Russian life. This meant, among other things, that the following laws were passed: the law that introduced limitations for foreign (non-Russian) funding of NGOs directly or indirectly involved in political action; legislation banning the adoption of Russian orphans by US citizens and residents (which was the official mirroring of the notorious Magnitsky Act (The Magnitsky Rule of Law Accountability Act) passed by the US Congress in the end of 2012); the law was dubbed the Dima Yakovlev Act after a Russian kid who

This acute protest of ERCs influenced the Russian authorities, forcing them to make some concessions which were at times pretty significant. This is what they did, among other things:

was adopted from the orphanage by American foster parents and in 2008 died due to criminal negligence. legislation that put limitations on promoting homosexuality (and in the wider sense singlesex relationships) among the minors: most representatives of the Russian gay community viewed this homosexuals. as discrimination against

- were not sufficiently appreciated by the ERCs who did not fell due gratitude to the government. What caught the attention of the active minority of Russian people was the incomplete and inconsequent character of these reforms and the elements interwoven into their very essense and fibre that partially made the whole reformation process meaningless. Such was the introduction of municipal filters at the elections of regional head officials (heads of Federal Subjects). These are by all means fair complaints, except for one thing. It is actually characteristic of perestroika that the concessions and compromises of the government seem less important and significant than they really are, while toughening compensating measures are viewed as more serious and fraught with major consequences, though it is actually not so. This is yet another sign of deep-rooted mistrust that the active members of society feel towards the authorities and the alienation of the two collective entities that is so hard to surmount. The third year of the second perestroika revealed a new nature of internal conflicts of the Russian elite that manifested themselves mostly as official (bureaucratic) and corporate wars. What happened in 2013 leads us to the conclusion about some new fundamental features and trends that came to light during such conflicts/wars. The initiators and participants of these wars are now qualitatively less dependent on various principles of the alleged Putins elite convention that was formed in early 2000-s. In particular, they no longer adhere to the rule not to air ones dirty linen in public. Putins elite no longer views itself as a unity and in resolving its internal conflicts does not limit itself to the methods and means that bear no risk of destabilization for the system in general. The destabilization of the system is no longer considered too high a price for the victory in a bureaucratic or corporate war (fight or battle), which is also a typical symptom of perestroika.

There were other similar acts as well. Besides, the criminal liability for slander abolished during Mr Medvedevs short spell as President was once again re-installed. Though the restrictive or repressive nature of the abovementioned and other compensating acts as well as their power had proved pretty modest, the active members of society ERCs reacted to these actions negatively. Some of these steps for instance, the Dima Yakovlev Act served as triggers and ignited new mass protests. Over 50,000 people flooded the streets of Moscow in January 2012 during the march against this law (the anti-orphans law also labelled as the law of villains). However, two-forked political choices and actions of the authorities one step forward, N steps back - are also characteristic of perestroika. They are inevitably determined by the nature of perestroika which is a stage or a period in the life of a system that had reached a certain phase and level of degradation: the authorities have no consequent program of strategic reforms and the task of the countrys leaders is not to transform the state drastically in any way but to preserve the system indefinitely by making semi-decisions (or semi-reforms, according to Alexey Kudrin, ex- Russian Minister of Finance and Putins trusted person who retired in September 2011 because of his disagreement with Dmitry Medvedev). At the same time the liberal actions of the authorities - their direct reaction to perestroikas challenges, the attitude of ERCs and mass protests

Non-political conflicts often become political in nature because political figures or players are actively involved. Internal conflicts of the Russian elite are now a factor in international politics. (The example is the Magnitsky Act and everything around it.) Just like Vladimir Putins first presidential spell (2000-2004), Dmitry Medvedevs presidency (2008-2012) saw the rise of a new generation of participants/players striving to have a hand in redistribution of funds and spheres of influence in Russian bureaucracy and business. Their advance was in many respects explained by close connection to the third president (and now Prime Minister of the Russian Federation).

results in a qualitatively tougher struggle for the abovemetioned funds and resources. Moreover, the main internal conflicts and wars of the Russian elite in 2013 once again confirm that the so-called power vertical is a mere propagandistic illusion. What we have in todays Russia is more of a power horizontal an undefined cluster of decision-making centers that arise (or exist) in any point of space in Russia where critical financial resources merge (join or unite) with critical power resources. These conclusions are best demonstrated by the most prominent Russian wars of the soon-to-beover 2013. Some of the wars or conflicts to be described had actually started (or had been initiated) in 2012; they, however, reached the stage of their public development and involvement in political decision-making mostly in 2013.

The funds and resources to be distrubuted and redestributed actually diminished. This can be explained by the systems weaknesses and the aggravating difficulties facing the Russian economy at the moment, which inevitably

The conflict around Medvedevs government and the onset of a shadow battle for the post of a potential successor in 2018
The possible discharge of federal government headed by Dmitry Medvedev and formed immediately after Putins third presidential inauguration in May 2012 became a priority issue for the expert community, media and progressive members of society !s early as the previous year. In fact, the general depressive mood that came over media observers after Mr Putins return to Kremlin had no other option than to take form of apocalyptic expectations for Mr Medvedev to be fired, because it was the latter who not so long ago was considered a symbol of some hope for decisive reforms in economic and political spheres and the widely promoted modernization for Russia. Special opinion of the SBF. Previously the SBF had numerously pointed out that Dmitry Medvedev and his closest companions who were allegedly responsible for the modernization strategy and the respective/related programmes (Arkady Dvorkovich, Vladislav Surkov and etc.) actually misunderstood and misinterpreted the term modernization. According to its classical definitio, modernization is the construction of a modern state and society whose main characteristic is the creation and development of powerful systems for human socialization. The environment of the modern society allows for the emergence of the nation, the community of political equals and the mentally and culturally homogenous people who at a certain point in history start calling themselves citizens of the state and viewing themselves as such. Modernization makes the nation a subject of authority - unlike the population, which can only be an object to be governed and nothing more. Surely this was not the kind of innovation that Medvedev, who announced his far-reaching designs in his essay Go, Russia! (Gazeta.Ru,

September 10, 2009), or his formal team (formal used informally here because a pseudo-leader like Medvedev with his total psychological dependency on older companions can not possibly have his own permanent team of like-minded people and co-workers), had in mind. What President Medvedev really meant by modernization, as demonstrated by his strategical plans and practical steps, were some scattered innovative measures, including a) the adoption of some imported technological solutions and b) the construction of Skolkovo Innovation Centre near Moscow, which became the states own nursery for high-tech business activities. Here is a simple example of Medvedevs modernization: the so-called YotaPhone recently announced by CEO of Rostec Corporation Sergey Chemezov a Russian smartphone assembled in Singapore from Chinese parts. If Vladimir Putin actually meant (or still means) that a system of measures like that should not be called modernization and the slogan of this program should actually be left behind, he is correct almost in every respect, notwithstanding the motivation (politics, choice of personnel and etc.) underlying his openly phrased and announced correctness. Medvedevs staff had suffered their first major loss on November 6, 2012 with the retirement of Anatoly Serdyukov, Russias Minister of Defence, who had formed a very close connection to the current Prime Minister in 2011-2011, during Medvedevs presidency. Mr Medvedev had numerously called Mr Serdyukov the best postSoviet Minister of Defence, both in public and in private. This openly contradicted the interests of some major lobbying parties: the military, generals of the defence industry complex and etc. As we know, the post of Defence Minister went to Sergey Shoygu who bears no genetical or historical connection to Mr Medvedev. The change from Serdyukov to Shoygu was viewed by informal community of well-informed people as a sign of Prime Ministers weakening position and, consequently, the emergence or manifestation of some new points confirming his possible forthcoming retirement. The conflict around the

Ministry of Defence and Mr Serdyukov is analyzed more closely in part 2 of this report. Furthermore, as early as December 2012 (or already in December 2012) the Institute of Globalization Studies (IPROG) headed by Mikhail Delyagin (Doctor of Economics) carried out a poll among the experts. The results were published by Izvestia (Russian newspaper). According to the majority of experts who took part in this poll, the discharge of Medvedevs government could actually occur as early as in the spring of 2013 (March-April, to be exact). Izvestia published an article expounding on the main points of the IPROGs report 2013: the liberal clan is forced to the background. They also explained the prognosis given: the discharge will take place because the Prime Ministers circle would be weakened and unable to defend itself due to the end of the interclan war that had aggravated in view of the recent fight with corruption, but will be over after the New Year. When the day came, however, the government was not even close to resignation. The second wave of gossip concerning the replacement of the current Prime Minister reached its breaking point in May 2013. On May 8 Deputy Prime Minister Vladislav Surkov, head of the Russian government officials, was fired allegedly of his own accord (while, in fact, his resignation was the result of one long and irreconcilable conflict with the chief staff of Presidential Administration: Sergey Ivanov and especially Vyacheslav Volodin). Due to his experience with staff and personal qualities Surkov was considered Prime Ministers main advocate (and in many respects rightly so). Surkovs resignation was preceded by a public scandal around the Skolkovo Innovation Center. The Center was under Surkovs supervision during both his previous position as the First Deputy Chief of the Russian Presidential Administration (20082011) and his current stint as Deputy Prime Minister - apart from managing the government

staff he was responsible for the issues and problems of the modernization program. As pointed by MK (Moskovsky Komsomolec newspaper) on April 25, first the Investigating Committee of the Russian Federation announced that the work carried out for the Skolkovo Foundation by deputy Ilya Ponomarev was not worth $750,000 that he had received, and instituted legal criminal proceedings against the Foundations former Vice President Alexey Beltyukov. Then Skolkovos President Viktor Vekselberg suddenly started doubting Ponomarevs integrity. Vekselberg announced his intention to sue the deputy if the dishonesty of the latter was to be confirmed. According to the newspaper, the audit of Ponomarevs income was initiated by Vladimir Zhirinovsky; the latter addressed the Duma Committee for controlling the deputies income. According to the leader of the political party LDPR, the member of A Just Russia had illegally acquired $750,000 from the Skolkovo Foundation. Subsequently this situation caught attention of the Investigating Committee of the Russian Federation, who instituted legal proceedings against Skolkovos ex-President Alexey Beltyukov, who was charged with major embezzlement. According to the Investigating Committee, the former Vice President tried to conceal the embezzlement of a large sum of money by negotiating a special contract with the deputy. On May 7 Newsru.com reported that Senior Vice President of the Skolkovo Foundation Alexey Beltyukov, who had been charged with major embezzlement, was temporarily suspended for the period of investigation of his criminal case. Deputy Ilya Ponomarev was summoned to testify on the case by the Investigation Committee. The active efforts of the Committee concerning the second criminal case in the history of the Skolkovo Foundation came as an unwelcome surprise for the Deputy Prime Minister Vladislav Surkov, whose chief Dmitry Medvedev was considered the founder of Skolkovo. The Investigation Committee of the Russian Federation makes their assumptions with such zest that ordinary people may think that

the crime has been committed. However, it is the Committees enthusiasm and nothing else, scolded Surkov the investigators at the time. The official representaive of the Committee Vladimir Markin promptly replied in his newspaper Izvestia, saying that as far as largescale projects are concerned, the Investigation Committee will always be the one to blame for the lack of results. Because they either order a search of the creative team at 8 oclock strictly according to the criminal procedure or scare away a foreign guest touring Skolkovos grounds by their procedural actions. Which prompts Russian citizens, including those who work at the Committee, to ask exactly how long would the member of H. M. G. (apparently, Her Majestys Government - note by Newsru.com) manage to hold his ot her position if during a private call to Moscow he or she would publicly blame the Scotland Yard for doing their job? Looks like we have too liberal a regime in Moscow. Special opinion of the SBF. Vladislav Surkov, who in late 2011-early 2012 did not hide his ambition to head the Kremlin Administration instead of Sergey Naryshkin, who became Head of the State Duma, suffered partial but painful defeat to his position in December 2011, after the events in Bolotnaya Square and Academician Sakharov Avenue. These events revealed that, as far as home policy was concerned, Vladimir Putin had more trust in Vyacheslav Volodin than in Surkov. Such shift of allegiance could in many respects be explained by the following circumstances and factors: A) in 2010-2011 (before the legendary replacement of September 24, 2011, announced at the history-making convention of United Russia) Mr Surkov privately but unambiguously expected Medvedev to be re-elected for the second term, and all the bureaucrats and creative experts in Surkovs home political hierarchy got the respective message; in view of this reality (not the alternative one) the heightened interest of the First Deputy Chief of the Russian Presidential Administration to the Skolkovo Project was quite logical; B) the President of the Russian Federation paid close

attention to the theory stating that it was Surkov who had secretly instigated mass protests in the capital in December 2011 in order to use them as leverage in settling his own political fate and career; but we know that Vladimir Putin is not the one to favour such tricks. However, Volodin had not been appointed Chief of the Presidential Administration, although he replaced Surkov at his long-held position as curator of the Kremlins home policy. At the same time, the Chiefs spot went to Sergey Ivanov, who, according to Putins basic judgement, thus received his compensation for having been humiliated in 2007 (when Ivanov had been the last to learn that he would not to become the Presidents successor because the coveted post had been given to Medvedev; and learned that from the papers as well) and the years of patient waiting that followed (from 2008 to 2011 Mr Ivanov had been suffering at a minor position, serving as Deputy Prime Minister for the Defence Industry Complex, although some say that it was this job that had finally given him a chance to drink from a life-giving fountain of big money). In the end Surkovs former position as Deputy Prime Minister and Head of Government Personnel went to the Presidents assistant Sergey Pryhodko. As for the supervision of the not-yetdead modernization, the function was taken over by Arkady Dvorkovich - Medvedevs most trusted bureaucrat. The observers viewed this change as a bad sign for the government in general. To a certain extent this point of view was indirectly fed by Surkov himself who had to make his resignation look as dramatic as possible, as well as entirely political in nature. Admittedly, the former Chief of Personnel still has some pretty good connections in the media - he collaborated with media people for 12 years on various Kremlin issues (1999-2011) - as well as in expert communities. Most of Surkovs former close subordinates and trusted people (his informal agents of influence) have now gravitated towards the new Governor of Moscow Oblast Andrey Vorobyev who tends to dislike Vyacheslav Volodin and everything around him. All that makes some observers think that in the near future Vladislav Surkov is going to decide to support

Sergey Shoygu as the potential Prime Minister and Putins successor (in 2018). However, it is too early to be certain. Too many factors can still influence the phrasing of this question. Data provided by the SBF. Vladislav Surkovs return to Kremlin in September 2013 (he was appointed Presidential Assistant for the Relations with Abkhazia and South Ossetia) was in many respects arranged by head of the Chechen Republic Ramzan Kadyrov. The latter had been favouring Surkov for years, not only as an official and government chief but also as the most prominent member of Federal Government who openly and perhaps even too aggressively flaunted his Chechen ethnicity. (Some say that Surkovs real name is Aslanbek Dudayev (Dudayev is his paternal surname); however, this theory surfaced by effort of Surkov himself and therefore can not be fully trusted. Modern psychology regards the desire of a person to create alternative identities as the most sure sign of a deeply ingrained inferiority complex.) Soon after his resignation as Deputy Prime Minister Surkov visited Grozny where Kadyrov welcomed him as a guest of the highest rank and even suggested becoming the President of Chechnya (as a joke, naturally, as Chechen leader is known for his kind-hearted humour). However, the data gathered by the Stanislav Belkovsky Foundation shows that Putin and Surkovs meeting in Sochi (at Bocharov Creek) where Aslanbek Dudayev received his honourable sinecure was organized by the Chairman of Rosneft Igor Sechin. Admittedly, both Sergey Ivanov and Vyacheslav Volodin still regard Surkov rather sceptically and critically. In October 2013 Ivanov publicly stated that Surkovs authority is not going to expand. A sinecure is a sinecure after all. In the summer of 2013 media fights around the fate of Medvedevs government peaked for the third time. The Communist Party of the Russian Federation - the biggest party in opposition in the Russian Parliament - initiated the collection of 1 million signatures among those Russian citizens who supported the discharge of the current government. The formal occasion for that was the

the reform of the Russian Academy of Sciences (in essence - the abolition of the Academy in its historical form and function). The reform was formally initiated by Dmitry Livanov, Russian Minister of Education and Science, and approved by Medvedevs government on June 27, 2013. The opinion of the SBF. The abolition of the Academy of Sciences was undoubtedly approved by President Putin. That is why it would be pointless and cruel to pile all the responsibility for the dramatic reorganization of the management system in the realm of Russian science on Medvedevs government. The philosophy of this reform can be summed up as follows: a) the existing model of economy based on the export of raw materials does not need fundamental science at all; individual applied scientific solutions that the economy might need can easily be imported which makes giant investments in research infrastructure largely unnecessary; b) the Academy of Science is a parasitic mediator in distributing state (budget) funds among research institutions; c) the abolition of the Academy in 2013 will not lead to social eruption (that could have been the case in the 1990s) because this is a necessary and timely step. On July 1 Slon.ru shared the following version of the events: the Presidential Administration actually asked the communists to prepare a billet by fall so that Medvedev could be fired later in the year. Besides, the unification of the Supreme Arbitrage and the Supreme Court had to be legally settled in the fall. Some experts consider that the next placement of the current Prime Minister will be the renewed Supreme Court. It was at the same time that the Vice-President of the Russian Academy of Sciences and winner of the Nobel Prize in physics Zhores Alferov addressed the deputies saying that Medvedev and Livanov should be fired from the government for drawing the reform of the Academy. Alferov was referring to the higher authority Presidents Putin Act of May 2013 that directed the creation of 25 million vacancies by 2020 in the

high-tech sector of economy. After that Gennady Zyuganov announced: We now begin expressing distrust with the current government. Such is our decision. In November Zyuganov reported to the President on the progress of actions implemented by the Communist Party that were to bring forward the resignation of the government. According to the MK, Zyuganov visited Putin on November 19 in order to discuss the forthcoming address to the Federal Assembly; he, however, had no time to speak about the resignation of the government. He brought with him three weighty red files containing, as he explained, some propositions made by communists to modernize the country and strengthen its national and territorial unity. He openly stated that the government was unable to manage the tasks given to them by the President because of its liberal course of actions and liberal nature. What the country needed was a strong, professional and expert government and a different kind of policy. Gennady Zyuganov also reminded the President that the Communist Party of the Russian Federation had already managed to collect 150,000 signatures needed to present the Duma with the demand to let go of the current Ministers. The fourth peak of gossip around the possible upcoming resignation of Medvedevs government happened after Putins speech at the November 14 session of the Agency for Strategic Initiatives Supervisory Board, where the President expressed his disapproval with some higher officials attempts to critisize the political choices that already had been made on all levels. By this he meant primarily the decision to withdraw the deposits of nongovernment pension funds in 2014 that would be further transferred to the federal budget and then to the Pension Fund of the Russian Federation. The amount of this withdrawal would equal approximately 240 billion roubles (almost $8 billion and around 7 times less than the expenses needed to organize and hold the 2014 Winter Olympics in Sochi). Vladimir Putin advised the officials who presumed they had the authority to

critisize the finalized decisions of the executive power (most importantly, the head of the state himself) to leave the government work and join the expert communities like Alexey Kudrin who had taken this desperate step in the fall of 2011. By some higher officials he meant primarily Dmitry Medvedev as well as Russian Minister for Economic Development Alexey Ulyukaev, who had been known to publicly critisize the virtual seizing of peoples pensions by the government. The opinion of the SBF. It is no secret (not a State secret at least) that the majority of the government including Medvedev and Ulyukaev, as well as heads of the Central Bank of Russia (Elvira Nabiullina and others) were against the abovementioned scenario for using the deposits from the non-governmental pension funds. However, Vladimir Putin considered the opinion issued by Deputy Prime Minister Olga Golodets, who actually stands for the abolition of the mixed pension system in Russia and the return of the state distrubution system. The philosophy behind the Presidents decision is transparent and fits Putins general approach perfectly: the (mostly) irresponsible Russian people will in any case be unable to save up to a substantial pension; most of them will expect to be protected by the state, because this is exactly what they always did and still do now. The fifth peak of arguments about Medvedevs resignation (that were, however, much more moderate, weighted and calm) was instigated by Putins address to the Federal Assembly of December 12, 2013, which contained some open criticism of the Russian Government whose lingering to implement the so-called May Acts of the President (a package of socially-oriented acts issued in May 2012) could surely be tolerated no more. On that very day Russian Prime Minister Dmitry Medvedev admitted that the government did not implement the Federal Purpose Plans and called this phenomenon a chronic disease of the Russian

Government. By this he immediately confirmed that Putins criticisms had been grounded. At a government session Medvedev subsequently noted that the realization of Federal Purpose Plans still left much to be desired. During one of the September sessions I already attempted to draw your attention to the inadequate implementation of the Plans. Unfortunately, it seems like a chronic disease. In the nine months that followed the situation remained mostly unchanged, the Prime Minister noted. At the same time, it must admitted that: during his recent address the President spoke of the Federal Government as his constant partner in all political and administrative matters, his attitude being not altogether critical; particularly, Vladimir Putin was issuing various direct tasks to the ministry and asked Dmitry Medvedev to take one particular situation under personal control, which is surely a sign of certain degree of trust between the countrys (formally) first and next most important executives. Parallel to Putins ambiguous comment about Medvedev in the presidential address the latter suffered a comparatively minor stab to his position in the government. The unexpected (for the majority of the ruling elite) act issued by the President announced the liquidation of RIA Novosti (the Russian Information Agency). Since 2003 the agency was headed by Svetlana Mironyuk, wife of the well-known PR businessman and manager Sergey Zverev. It is considered common knowledge that since Medvedevs arrival at the Kremlin in 2008 Mironyuk had been looking for guidance mainly with the new President and some key figures in his proximity, especially the Presidents Press Secretary Natalya Timakova. The late RIA Novosti was succeeded by the newlycreated media corporation Russia Today with Dmitry Kiselev at its head. The latter is a notorious (such is his self-staged media image) journalist and Deputy CEO of VGTRK (The All-Russia State Television and Radio Broadcasting Company).

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According to the data gathered bu the Stanislav Belkovsky Foundation, this venture was organized by the First Deputy Chief of the Presidential Administration Alexey Gromov and his main partner, CEO of Gazprom Media Mikhail Lesin who decided to merge RIA Novosti with their formal and informal media empire. The progressive part of humanity viewed this as Prime Ministerss another small but significant defeat. Currently up to 40% members of the elite believe that Dmitry Medvedevs government will fall straight after the Winter Olympics in Sochi, i.e. in March-April 2014. (According to their judgement, Vladimir Putin will not dare stir such serious trouble in the governmental waters prior to the allimportant sports and historic event, in order not to create additional sudden risks. Although it must be admitted that liquidation of RIA Novosti two months prior to the Olympics is also a risky venture in this context, because RIA Novosti used to be the official media hub for the Presidents coveted Olympics). According to the SBF, the instability of the current ministry is based on the following cardinal factors: the objective factor, which is the Presidents wish to always have a lightning rod at hand. As the President is more or less aware of the fundamental and systemic problems of the current economic model in Russia, he needs a collective recepient for the social and national dissatisfaction, and Medvedevs government provides him with this opportunity; the subjective factor, which is the desire of some influential figures of the Putin era to get rid of Dmitry Medvedev and somewhat emphatically trample down on him with a malevolent smack. The figures referred to in the previous passage are most certainly these people:

A) Current Head of Presidential Administration Sergey Ivanov, who cannot forgive the Prime Minister for getting ahead of him and becoming President in 2007. We remember quite clearly that from February to September 2007 Mr Ivanov used to be the most likely candidate in the race of Putins successors, but then the leader of the nation chose to advance Dmitry Medvedev and appointed Viktor Zubkov temporary Prime Minister (Zubkov used to be head of the Federal Financial Monitoring Service and one step short of retirement). From 2008 to 2011 Ivanov had suffered on obscurity, at a relatively minor (in view of his previous plans and ambitions) position as Deputy Prime Minister for the Defence Industry Complex. The elite considered him essentially a shot-down pilot. However, it was during that very time span that the future Chief of the Presidential Administration first got acquainted with big business: his son Sergey (Sergeevich) Ivanov Junior became Vice President of Gazprombank and, according to the established legend of the business circles, used to be immediately responsible for the consolidation of stock at the subsidiaries of Rostelecom, the main national telecommunications company, controlled by the influential investment fund Marshall Capital Management, a close companion of the former (2008-2012) Minister of Communications and Mass Media Igor Shchyogolev. Currently the information leaks about Ivanov Jrs possible forthcoming promotion to CEO of Gazprombank are becoming more and more frequent, which is even more likely if the current CEO Andrey Akimov takes one of the key positions at the OJSC Gazprom. B) The former Deputy Prime Minister and Minister of Finance of the Russian Federation Alexey Kudrin, who is now Chairman of the public Civil Initiatives Committee. Mr Kudrin who is considered Russias best financial expert by many, including, probably, Mr Putin himself, tends to think that he would be better at Medvedevs job as Head of Government, being able to progress from semi-reforms to true full-scale economic and social reformation. His Civil Initiatives Committee

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is constantly, though, perhaps, covertly, presented by Kudrin as some kind of germinal headquarters of the forthcoming reforms. It must be stated, however, that the Committee is staffed by many experts who quite recently were considered true Medvedevs people (Igor Yurgens, Evgeny Gontmacher and others) and mostly functioned under the roof of the Institute of Modern Development, which served as the informal brain center to the former President. Only after they felt disillusioned with Medvedev they hastened to find a new patron in the face of Mr Kudrin. One must also note that Kudrin has never come up with any profound or groundbreaking ideas about economics during his stint as Minister of Finance (2000-2011) or subsequently; his only proposition was to introduce the much-needed strict control of state budget expenses and to accumulate reserve funds of various kinds and nature. In opinion of the SBF, these ideas are sufficiently all right for the nations chief accountant but definitely lacking for the leader of the reformation team in the state that is currently undergoing a period of aggravating political and economic unrest (the second perestroika, as we have mentioned before). Sceptically minded people, such the Head of the State Duma Budget Committee Andrey Makarov, have pointed out repeatedly and for a reason that the economic model that we inhabit at the moment could as well be called Kudrinomy, because the former Minister of Finance played almost the most significant part in its formation and implementation in the first decade of the 21st century. In view of this, it is not always correct and appropriate for him to criticize the current state of the Russian economy. C) Head of Rosneft Igor Sechin. Although today the concern of this official lies in the realm of the fuel and energy complex and its certain sectors, he would definitely be interested in getting rid of government officials who interfere with his management of the FEC (first and foremost Deputy Prime Minister Dvorkovich). Mr Sechin has a motive to attack Medvedevs ministry; he also maintains an informal relationship with Putin that allows him to resolve many issues that lie beyond

his usual competence as CEO at Rosneft, as well as to give the President many a recommendation, including those concerning the staff. Note by the SBF. The year 2013 saw a heated battle between Dvorkovich and Sechin, who were fighting for influence in the Russian fuel and energy complex. We do not analyse this issue separately or comprehensively only because it almost in all respects belongs to the same context and logicality as other battles around Medvedevs government. It was in 2012 that Sechin initiated the foundation of the Presidential Council for the Development of the Fuel and Energy Complex and became its executive secretary. Essentially, the Council was to take on some of the governments functions for managing the energy complex, distribution of oilfields and so on. However, the government managed to paralyze the organization at least partially. activities of this

Which did not stop Mr Sechin from gaining more influence in the FEC due to the active expansion of OJSC Rosneft. In the late 2012 and 2013 Rosneft acquired TNK-BP and Itera. It is quite possible that in the near future Rosneft will acquire Gazprom Neft, restoring its original name Sibneft. Fighting the omnivorous Rosneft the government earned the support of OJSC Transneft whose CEO Nikolai Tokarev used to be Sechins protg in 2007 but drifted away from his former colleague in the course of their respective financial careers. In 2012 Transneft and Rosneft were involved in an aggressive fight over the operation factors at the Eastern Siberia Pacific Ocean pipe-line and some other issues. A separate matter for discussion is the now-active battle between Putins potential successors for 2018. In view of the fact that the same very struggle among governmental officials in 2005-2007 ended in disunity of the elite and, to a certain degree, the

12

destabilization of the state system in general, Mr Putin now sends his close company and the lobbying parties messages of the following character: quite possibly I will not go away in 2018 so do not get involved in competing for my throne too soon. However, in the circumstances of the second perestroika the President does not have enough leverage to block the struggle and entirely silence the gossip around the potential successorship. The likely and potential participants of this fight for the throne now include the abovementioned Sergey Ivanov, Alexey Kudrin, Minister of Defence Sergey Shoygu, Deputy Prime Minister for the Defence Industry Complex Dmitry Rogozin and Sergey Sobyanin (until the recently held early elections of the Moscow mayor). Note by the SBF. At the same time, the alleged (although not 100% certain for the lack of proof) arrangement of September 2011 between Vladimir Putin and Dmitry Medvedev, according to which the current Prime Minister will hold his position until 2018 and then, just like in 2008, remain in the Kremlin, is still considered valid. At least in practicing the ceremony, the Head of the Government undoubtedly remains the second or even 1!-important person in the country, leaving other players of the current power game far behind. One small everyday proof of that is the fact that Medvedev is the only person besides Putin who travels from his country residence by air (by which we mean not his power of teleportation of transgression, but a fleet of three (!) helicopters). From the point of view of ceremonial power this is quite telling and significant: shot-down pilots or lame ducks do not usually travel with such flair. The possibility of Sergey Shoygus joining the presidential race of 2018 first started generating talk on November 6, 2012, when he was appointed Russian Minister of Defence instead of Anatoly Serdyukov. Supporters of Shoygu among bureaucracy and from the expert communities tend to think that being such a powerful public figure and a general of army besides, he will be able to at least relatively stabilize the very lopsided state

management

system

that

gravitates

towards

disintegration. Mr Shoygu is enough an authority in different segments of state machinery to control the situation in the country at least as good as its long-term President Putin, or maybe even better. However, there is yet no clarity as for the intentions and plans of the current Minister of Defence. (The same cannot be said about Sergey Ivanov, Alexey Kudrin and others whose tired foreheads could as well be embellished with the word successor printed in red letters.) On the one hand, Shoygu is pretty self-restrained and discreet which can be explained by his mentality and cultural background as well as psychological trauma: almost his whole life he had to go under someone elses name (his real name is Sergey Shoyguvich Kuzhuget. The scandalous aberration was due to the mistake of a passport issuing service in Tuva who mixed up the heros name and patronymic). On the other hand, Shoygu has never initiated any political action except for those dictated by the Kremlin. In 1999 he became leader of the election candidates for Unity (political party) following the respective direction/order of the Presidential Administration (the idea to advance Shoygu into the world of public politics in order to save the Kremlin during the Duma elections of 1999 was suggested by the late Boris Berezovsky). Later Shoygu expertly avoided taking a key post in United Russia formed by the merged Unity and Fatherland - All Russia parties. The SBF consider that the straightforward advance of Shoygu towards the Prime Ministers and presidential chairs is possible only by Putins direct approval, although some major business groups and bureaucratic circles surely may use this figure as one with a high potential without the Kremlins prior consent. At the same time, Dmitry Rogozin is viewed by the observers as possible Prime Minister and Putins successor because of his tough appearance and alleged popularity among the nationalists. His toughness, however, should not be overly deceptive to anyone: the current weight of the Defence Minister in the state system is not very significant,

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while his reputation with the Russian nationalists had suffered a major blow after his refusal (essentially, renunciation) to be part of Motherland (Rodina, or the National Patriotic Party) in 2007 and the subsequent long and faultless service to the Kremlin, first as Russias Ambassador to NATO and then at his current position. However, like the Taoist monk dreaming of a butterfly (or vice versa?), Rogozins promising political career exists primarily in the imagination of his close relatives. It would be too ill-considered to claim that President Putin has enough reasons to put his trust into a politician who as recently as in 2005-2006 went to some of the disgraced oligarchs in order to secure some $100 million for a peaceful revolution in Russia (and subsequently was the first to report it to the Presidential Administration). At the same time, Mr Rogozin does not shun projects that serve as an indirect proof of his far-reaching and highly political ambition: in particular, he is involved in restoring Motherland (as part of and under the aegis of the All-Russian National Front), whose factual reanimator and current chief is deputy of the State Duma Alexey Zhuravlev (United Russia). The latter is a de facto Assistant Deputy Prime Minister for the Russian Financial Assistance to Transnistria (the Pridnestrovian Moldavian Republic) and recently became famous for his brawl with Ramzan Kadyrovs (the President of Chechnya) right hand and deputy of United Russia Adam Delimhanov (that ended in Zhuravlevs defeat and subsequent reconciliation of irreconcilable opponents).

Firstly, Medvedev had obviously resigned himself to his current role in politics and position in the state machinery. He is ready to forgo all kinds of humiliation in order to further implement the mysterious and semi-mystical arrangement of 2018. Secondly, key political and economic decisions can be made by the President without Prime Ministers involvement, and it makes no practical sense to get rid of such accomodating Head of the Cabinet any time soon. Thirdly, the dialectic triad of Russian Prime Ministers appointed by Putins personal choice (Mikhail Fradkov, Viktor Zubkov and Dmitry Medvedev) leads us to think that the true Prime Minister of Putin should be politically dependent on the President in all respects. Fourthly, an alternative Prime Minister (Kudrin, Shoygu, etc.) immediately after his appointment would serve as hope for the majority of the Russian elite and an important political sign to some of the nations people, which will naturally aggravate struggle for presidency in 2018. The President does not want that for sure. He has no intention to become a lame duck sooner than necessary, as well as be a bad President compare to the good Prime Minister. Dmitry Medvedev has long ago stopped being a hope and is not going to become one, like he did in 2008. Fifthly, Putins political style and judgement lead

Sergey Sobyanin is worth mentioning as well. Until September 8, 2013 he was considered a potential Prime Minister and successor to the presidential chair in 2018 by some segments of the elite (see part 5 of this Report). The conclusion of the SBF about the fate of Medvedevs government. In spite of all the objective and subjective reasons for the ministry to be dismissed in 2014, there are certainly serious arguments in favour of Prime Ministers retaining his current position at least in the mid-term.

us to conclude that this type of leader always tries to make critical choices at the last minute, when the choice has to be made, and leave room for option until the very end. According to this line of judgement, the Head of the Government needs to be dismissed when there is really no other option. Currently the situation according to the President is clearly not at all critical, so his judgement is completely reasonable in this respect. Sixthly, separate staff replacements in the ministry can be a compromise allowing not to dismiss the government altogether.

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Sevenly, Dmitry Medvedev is Putins political offspring, and no matter how deep his dissatisfation with the government may be, the President does not bear any ill will against his offspring - the current Prime Minister. Giving the foolish child a time-out or punishing him is one thing. Murdering him (even in the political sense) is quite another. One should also keep in mind that Dmitry Medvedev is not only Prime Minister but also Head of United Russia. Which means that by dismissing the Cabinet, Putin will have to replace the head of the ruling party as well, and that is sure to bring him headache. That is why, despite the cruel attack against the government from politicians, state officials and the media, Prime Minister

Dmitry Medvedev is most likely to retain his position in the near foreseeable future. However, it is quite possible that 2014 will be the last year of Medvedevs Cabinet. Its dismissal will be necessitated by a combination of factors quite enough to cause such an action: qualitative economic decline combined with a large-scale infrastructural collapse or other calamity of the same kind, or the sudden receival by the President of shocking news that will make him doubt the Prime Ministers long-term loyalty. The year to come will show whether this combination of factors arises.

Serdyukovs case in progress

2013 saw a heated battle around the former (20072012) Russian Minister of Defence Anatoly Serdyukov. The media campaign against the former chief of the military department drew upon several criminal cases currently led by the Investigating Committee of the Russian Federation. The first case (October 2012) deals with the Russian company Oboronservice and concerns its illegal schemes of selling nonspecialized military stock (including the building of Mosvoyentorg) that brought material damage to the state at estimated 3 billion roubles (at the very least). The case also involves former Head of Privity Department Evgeniya Vasilyeva and CEO of JSC Prioritet Irina Yegorova. The second is the so-called case of Zhitnoye recreation centre (November 2013). The evidence state that Serdyukov, still being a Minister of Defence, had given verbal orders to construst a road connecting the village of Kras in Astrakhan Oblast to the island of Shkolny which houses the non-commercial co-operative of

Zhitnoye, to be funded by the Ministry. Anatoly Serdyukov was appointed Minister of Defence on February 15, 2007. Before this appointment he had been a tax official for several years. Particularly, in early 2000s Serdyukov used to be chief of the near-legendary Inter-District Tax Inspectorate ! 1 in Saint Petersburg which registered many a major taxpayer. Serdyukovs career was to a certain degree facilitated by his marriage to Yulia Pokhlebenina (Zubkova), daughter of Viktor Zubkov, an elderly gentleman (born in 1941) whose incomprehensible proximity to Putin is well-known. Viktor Zubkov is actually an agricultural expert (in the 1980s he used to be chairman of one of the state farms (sovkhoz) and even served as Head of the State Farm Association in Leningrad Oblast). From 1991 to 1993 he was Putins Deputy at the Committee for External Relations in Saint Petersburg Mayors Office. The detailed career description of this gray-haired

15

gentleman (who, according to our at-a-glance estimation, prefers dying his gray hair), is not among the objectives of this Report; it would be sufficient to say that in September 2007 it was Zubkov whom Putin decided to appoint Head of the Russian Government and acting Prime Minister for the period of transition between the two Russian Presidents. Zubkov had remained at this position until the forming of the new Cabinet with Putin at its head was complete. The decision was taken in spite of Zubkov nearing his birthday and preparing for an honourable and final 66th

Federal Tax Service, and now he serves as Assistant to the President of the Russian Federation. This, however, does not diminish the crucial role of Serdyukov in this case. The appointment of this high-rank tax official Minister of Defence in February 2007 was viewed by many as sensational and almost a sign of willfullness of the Supreme Commander-in-Chief. But the decision was by all means dictated by a certain logics. Putin was drawing upon the notion that the radical reform of the armed forces is surely necessary because the Russian army essentially serves the needs of a non-existent state (the USSR). The mission of the Soviet Army was to maintain world peace by permanently expecting a global war to happen. The state spared no expense in order to provide for this period of permanent alert. The army in the post-Soviet Russia, however, in view of the countrys political priorities and guiding lines, on the contrary, was not to expect major wars any time soon. Its objective was to participate in minor conflicts at the borderline of the Russian Federation as well as to fulfill its military function in case the Ministry of Internal Affairs was unable to provide enough forces and resources. The only person able to carry out the reform that was doomed to be unpopular with the armed forces was an official who met the following criteria: the one with no background in the military: not constrained by romantic memories of the Armys great past or responsibilities to the military Mob; the one who could be tough if necessary; the one who had proven his managerial skills in other fields of governmental work (Sergey Ivanov had not managed to fulfill this task during his stint as Minister of Defence); the one who was ready to be viewed as a bad guy, i.e. the one who received all the blows deflecting the political and reputational damage from the President himself.

retirement from his position as Head of the Federal Financial Monitoring Service, having received a sinecure in the Federal Council of the Federal Assembly. Zubkov had been Prime Minister until May 2008 (though some influential ministers, particularly Alexey Kudrin, never took him seriously), and then served as the First Deputy Prime Minister up until May 2012. At the same time, the observers note that Serdyukovs career was not facilitated by connections alone. His personal qualities had also played a part, especially his toughness and consistensy in dealing with the challenges provided by his superiors. In 2004 Anatoly Serdyukov was appointed Chief of the Federal Tax Service of the Russian Federation, replacing Gennady Bukayev who was considered protg of the then- (but no longer) influential owner of Mezhprombank Sergey Pugachev (the so-called orthodox banker). Serdyukovs main objective at the Federal Tax Service was to ruin the Yukos Oil Company whose main stock was then to be acquired by Rosneft. Unlike Mr Bukayev who was almost ready to strike a mutually beneficial deal with Yukos stockholders (which was one of the main reasons for his dismissal), Serdyukov attacked the case with his characteristic implacability. Soon Yukos was facing tax claims amounting to $27,5 billion, which eventually led to the bankrupcy of this corporation. Some observers note a special part played by Anton Ustinov (nephew of the then General Prosecutor of the Russian Federation Vladimir Ustinov) in the special operation by tax authorities. At the time Ustinov was Chief of the Law Department at the

16

Anatoly Serdyukov met all the abovementioned criteria and therefore was selected as the best candidate. Reference by the SBF. The reform of the Russian Army according to Serdyukov. According to the public announcements of its authors, the main objectives of this reform that had essentially begun in 2008 were: The reduction of army strength from 1,35 million to 1 million personnel. The complete abolition of the so-called frame formations in land forces. Those were military units whose factual strength during peaceful time amounted to 15-20% of the regular strength and in the time of global war had to be increased by means of full mobilization. The rest of the troops had to be cleared for action. The number of units and troops, as well as military bases, was to be reduced. The plan was to dismantle over 200 bases and warehouses, creating 34 full-fledged take-off facilities instead. The reduction of officers staff from 335,000 to 150,000 due to the disproportionate size of officers corps. Abolishing the ranks of praporshik and mitchman. The transition from a four-link management system (command army division regiment) to a three-link system (command operation headquarters - subdivision); the abolition of divisional, corps and army links. The abolition of 65 military schools (15 academies, 46 institutes and colleges, 4 universities) with subsequent transfer of the students and staff to the 10 so-called training units. The reduction of central staff and executive organs at the Military Department of the Ministry of Defence, as well as its maintenance and service units from 51,000 to 13,500 personnel. Among other things, this led to the disbandment of the Main Department for

Combat Training that was responsible for combat training in the armed forces. This action was caused by the necessity to hand over the function of managing the troops directly to the General Staff of the Russian Army. The six military commands were replaced by four interspecific United Strategic Headquarters. This sub-reform was not intended for airborne troops, strategic missile troops or aerospace defence troops that continued to report to central control. The merge of air forces and anti-aircraft defence with disbandment of armies, corps, divisions and air units and the introduction of a new system of air bases and aerospace defence subdivisions. Outsourcing base maintenance to civilian business corporations. Intensifying combat training and increasing the frequency of all exercise on every level from tactical to strategic manoeuvres. The introduction of a state armament program for 2011-2020. During this period the troops would undergo major re-equipment with new armament (increasing up-to-date armament and defence technology to 70%). Qualitative raise in money allowance of military personnel. Solving the chronic housing problem in the military. Reorganization of military health service. The reform aimed to close a number of regional military hospitals. The number of military health institutions was meant to be reduced by 30%, leading to the dismissal of 2200 officers and disbandment of 22 military hospitals. Instead larger medical centers were meant to be established. Special initiatives by Serdyukov deserve a separate mention. These steps did not directly comply with the announced objectives of the reform; however, they caused a great response in the neurotic Russian society.

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Excluding the students of military colleges the so-called Suvorovstsy and Nakhimovtsy - from participation in military parades; Introducing a new military uniform created by the famous designer Valentin Yudashkin that copied some elements traditionally used in NATO uniforms (e.g. the lack of epaulets); Mass purchase of foreign-made defence

Finally, 7,500 officer positions had been occupied by those drafted after graduation from civilian colleges. Which meant that after some easy reduction the officers corps numbered 250,000 personnel. However, after that the reform stalled and was partially reviewed; by effort of military lobbyists the final strength of the corps was raised to 220,000 on the grounds that 70,000 officers were needed to staff the new unified aerospace defence system. Out of 120,000 praporshiks and mitchmen 20,000 command personnel were promoted to officers (which in a way contradicted the need to reduce the officers corps as well). The rest were fired or made sergeants. The transition to subdivision system was fully implemented. All units were replaced by 85 subdivisions cleared for action. As for the military education reform, it was stalled by its adversaries. Some institutes and colleges were simply renamed subsidiaries of training units in order to preserve them intact. Therefore, by the end of the reform there were not 10 but 17 military schools in Russia. The staff and departments of the Defence Ministry were significantly reduced. Serdyukov carried out a comprehensive reform of commands: the Moscow and Leningrad commands, as well as the Northern and Baltic Fleet were merged to create the Western Strategic Operation Headquarters. The North Caucasian command and the Black Sea Fleet became the Southern Strategic Operation Headquarters (based in Rostov-on-Don). The Privolzhsko-Ural command and western part of the Siberian command became the Central Strategic Operation Headquarters (based in Yekaterinburg). The remaining part of the Siberian and Far Eastern command and the Pacific Fleet became the Eastern Strategic Operation Khabarovsk). A new system of subdivisions and headquarters was introduced in air forces and anti-aircraft defence (similar to that of land troops). Headquarters (based in

technology (Mistral helicopter carrier, Iveco armoured car that replaced the Russian BMD4M) while harshly criticizing the quality of Russian-made arms. Among others, Serdyukov lashed Izhmash for low quality of their sharpshooter rifle SVD; Uralvagonzavod for the obsolete design of T-90 tank that essentially copied the construction of T-34, and etc. Allowing the military personnel (including fixed-period soldiers) to use cell phones. Before his resignation in November 2012 Serdyukov had managed to implement the following measures: The army strength had been reduced to 1 million personnel by 2012 (instead of the previously scheduled 2016). All frame units were disbanded and their armament moved for long-term storage. The reform led to 100% units being cleared for action. Their full personnel strength reached 95-100%. The units were 100% equipped with technical and material supplies. Military warehouses for long-term storage of technology and arms were installed in place of the disbanded frame units. As for the reduction of the officers corps, this presented a bigger challenge. The thing was that of the 335,000 officer positions that existed when the reform was introduced, 40,000 were vacant, which meant that only 295,000 existing spots had to be reduced to 150,000. However, 27,000 of these 295,000 had reached the age limit of military service in 2008 and were therefore dismissed. Another 9,000 had reached the age limit in 2009.

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Military maintenance was fully outsourced. Though this reform was not the most significant of all the measures introduced, for Serdyukov it was fraught with the gravest consequences, incurring legal and reputational damage. Because the outsourcing was accompanied by the traditional feature of modern Russia - corruption - it is difficult to estimate the effectiveness of this measure.

understanding of objectives and essence of the army reform. That is why the laments of a certain part of military elite and expert communities that Anatoly Serdyukov allegedly deceived Putin are surely insincere and should not be taken seriously. He could have deceived him in petty things but his main line strictly adhered to the Supreme Commanders orders. According to the data/opinion by the SBF, Anatoly Serdyukov had played a major role in the South Ossetian War of August 2008. The delay in sending Russian troops to South Ossetia that almost led to Georgias victory in the war and loss of the independence by the Republic of South Ossetia was not entirely the result of hesitation from President Medvedev (who on August 8, 2008 was having his scheduled holiday on the Volga River) and Prime Minister Putin (who was guest of the Beijing Olympics Opening Ceremony that day). There was also the reluctance of some major Russian generals to get involved in a local war. The decision to send the 58th army to the South Ossetia was taken on the Ministers pressing demand. Later Serdyukov managed to fire some of the generals that resisted him, thus earning even more dislike from the military people. Among others, he fired Chief of the General Stuff of the Russian Armed Forces general Yury Baluyevsky, Deputy Minister of Defence for the Home Front general Vladimir Isakov, Commander-in-Chief of the Russian Navy admiral of the fleet Vladimir Masorin, Commander of Strategic Missile Troops colonelgeneral Nikolai Solovtsov, Head of the Main Intelligence Department of the General Stuff general Vladimir Korabelnikov, Commander-inChief of Land Troops general Vladimir Boldyrev, Head of the Main Board for Educational Work at the Russian Armed Forces lieutenant-general Anatoly Bashlakov. Rephrasing Winston Churchills quote one may say that those who stand up for something usually make many enemies. During his spell at the Ministry of Defence Anatoly Serdyukov acquired

Regular exercise and tests of military efficiency were introduced. The State armament program was introduced and the troops started being equipped with new defence technology. New, however, did not necessarily mean up-to-date; in reality it was somewhat updated Soviet technology. Innovative designs like Armata tank, PAK FA fighter jet and etc., never saw line production.

Salaries of military personnel were doubled or tripled; however, a set of benefits and additional payments was taken away from them. The servicemen now had to pay for their own transport to/from holiday destination; those who retired after 25 years of service received the equivalent of only 7 salaries. Additional payments to those who have an academic degree or status were abolished. Treatment at spas and resorts were now fully paid by the servicemen and members of their families. As a result, the rise in salary mostly accounted for the expenses that arose.

The housing problem was not solved. Houses and even settlements for the military were constructed, however, many of them, though having amenities, were away from transportation facilities and had other problems as well. Accomodation in Moscow was not provided.

Surely such reform could have been carried out by the one person who feels no regret for the sentimental museum image of the Soviet Army. At the same time, the philosophy of Serdyukovs reforms was undoubedly created by the current President Putin. During his stint as Minister of Defence Serdyukov had never made a strategic choice that contradicted Putins vision and

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many influential adversaries and opponents, of which the following mentioning: are particularly worth

Defence was experiencing increasing pressure from two sources: the media campaign with participation of some high-rank representatives of the military elite, especially those who retired; the investigation of corruption and general economic violations in the Ministry of Defence that since 2012 had been carried out by the Investigation Committee. One of the first scandals was the purchase of French helicopters Eurocopter by the Ministry of Defence. According to Izvestia.ru (February 21, 2012), the Kazan Helicopter Plant shared that the tender for government purchases stated the requirements for fuel efficiency, range and carrying capacity that could be faced only by imported aircraft. On September 20 Moskovsky Komsomolec wrote that the French helicopters were destined to become VIP taxi. In the end, after the media exposure, the tender was nullified. The pressure especially hardened after Putins return to Kremlin (May 2012). Being Chief of the Presidential Administration, acquired the authority to Sergey Ivanov supervise law

Sergey Ivanov who was always hypersensitive to his successors activities at the Ministry of Defence; Sergey Chemezov, CEO of the state-owned corporation Rostechnologies that joins several defence industry enterprises criticized by the Minister; Dmitry Rogozin (since May 2012): having become Deputy Prime Minister for the Defence Industry Complex, this one obviously decided that he should be the Minister of Defence.

It should be noted that Anatoly Serdyukov had his own problems at the home front as well, meaning his former place of employment at the Federal Tax Service. Admittedly, for a while after he left for the Ministry of Defence the Federal Tax Service actually remained under his influence because the position of its chief was taken by his protg and deputy Mikhail Mokretsov, who had occupied it from 2007 to 2010. However, Deputy Prime Minister and official supervisor of the Federal Tax Service Alexey Kudrin consistently fought for the replacement of Serdyukovs people in tax authorities with his own, and in the end succeeded. In 2010 Mokretsov was replaced by Kudrins candidate Mikhail Mishustin. Which was soon followed by the scandal around the illegal VAT refunds allegedly involving former staff of the Federal Tax Service, including the notorious chief of the 28th tax inspectorate Olga Stepanova. Some evidence point that the extensive discreditable material used by William Browder (see chapter 7 of this Report) was actually provided not by a mythical European private investigator but by the rival bureaucratic clan and came from the depths of the Federal Tax Service. Apparently Anatoly Serdyukov thought that his toughness in implementing the military reform would make him invulnerable to bureaucratic intrigue. However, he was wrong. The Minister of

enforcement agencies and, according to the data collected by the SBF, was not afraid to use his new authority to bring Serdyukov down. On November 6, 2012 Putin fired Serdyukov. (Notably, the Minister of Defence (as well as Vladislav Surkov in the year to come) was fired the day before the great Soviet holiday. Apparently the President thinks that the Russian society best endure staff replacements of such level and scale inebriated and in festive mood). The Ministers chair went to Sergey Shoygu who at the time served as Governor of Moscow Oblast. There is evidence pointing that his nomination was neither a strategic nor a pre-arranged decision. (Regardless of the opinion of those observers who consider the new Minister of Defence Putins most likely sucessor.) As we have already noted, this appointment was apparently coveted by Dmitry

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Rogozin. It is also a well-known fact that Head of Security Council of the Russian Federation Nikolai Patrushev had been offered to take the post but refused due to health issues. That very moment marked the intense investigation of the activities carried out by various entities in Serdyukovs Ministry. The inquiry was led by the Investigation Committee and actively supported by the media. It didnt take long for the media to start portraying Serdyukov as almost the worst corrupted bureaucrat of the Putins era in Russias recent history. The popular topic for discussion was exactly when the former Minister was going to be charged with a criminal case, as well as the facilities enjoyed by the former Head of Privity Department Evgeniya Vasilyeva during her home arrest. As for Mr Serdyukov, he had been repeatedly summoned to the Investigation Committee, however, during his first two visits refused to testify. On February 19, 2013 he was summoned for questioning together with Evgeniya Vasilyeva and yet again refused to give testimony to the Investigation Committee and provide assistance with the inquiry. According to the Kommersant newspaper of July 24, on January 12, 2013 the [Committee] learned that the Ministry of Defence during Serdyukovs spell as its chief actively promoted the business activities of Serdyukovs brother-in-law Valery Puzikov, husband of the former Ministers sister Galina. Serdyukov spent all summer in Zhitnoye, went fishing and received guests of the highest rank, including Putin and Medvedev. In the end of January 2013 the Main Military Investigation Department instituted legal proceedings, charging Serdyukov with abuse of official powers. On July 23 Serdyukov had been interrogated again as to a certain ancient mansion on the grounds of the Tauride Palace in Saint Petersburg that he had sold to a relative for a dime (Kommersant, July 24). Such was the reason for the next interrogation. Evgeniya Vasilyeva had been persecuted with similar zealousness, acquiring the informal status

of former Ministers close friend. On November 23, 2013 Vasilyeva was charged with major fraud (Part 3 of the Article 159 of the Criminal Code). The suspect was detained by the Federal Security Service; the Khamovniki Court refused to release her on bail of 15 million roubles and chose to place her under home arrest. According to case files, Vasilyeva and others were involved in property theft from the subsidiaries of Oboronservice; the summary amount of theft estimated at over 360 million roubles. In the forthcoming 2013 she was also charged with theft of shares from the state enterprise OJSC 31st State Design Institute of Special Construction worth over 190 million roubles, leasing state property (the Levashov military range in Saint Petersburg), and privatizing over 613 hectares of military land in Leningrad Oblast which, according to the investigators of this case, incurred material damage amounting to over 1 billion roubles (Kommersant, July 20, 2012). All in all Vasilyeva was facing up to 12 years imprisonment (Top.rbc.ru, October 4, 2013). However, on November 1, 2013 Anatoly Serdyukov was appointed CEO of the Federal Research and Evaluation Center for Mechanical Engineering. Some observers viewed this as pardon certificate for the ex-Minister: thus the authorities admitted that the negative consequences of his actions during the army reform were appreciably less significant than their positive consequences; also, he had never broken any basic principle or rule of the staff ethics in Putins Russia. Particularly, he did not critisize President Putin or draw attention to the fact that Zhitnoye recreation center was actually used to recreate both members of the power tandem (Medvedev and Putin). Dmitry Medvedev, who used to be President at the time, even put his photos from Zhitnoye on Instagram. On the other hand, Serdyukovs appointment to a pretty minor position within Rostechnologies (the Federal Research and Evaluation Center for Mechanical Engineering is part of this state-owned corporation) may also be the sign of Ivanovs and Chemezovs wish to gain additional and deeper

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control over the obstinate ex-Minister, keeping him close to the investigation of his criminal case. It is much easier to keep an eye on Serdyukov at his new post, which includes tracking his contacts, monitoring telephone calls and other similar conversations, and etc. On November 28, 2013 Anatoly Serdyukov was finally charged in a case concerning the construction of the notorious road to Zhitnoye recreation centre. This was preceded by a memorable statement made by Vladimir Markin, the official representative of the Investigation Committee, who hinted that the new status of the former Minister as defendant in a criminal case would please the majority or the Russian people. The common opinion at the moment is that Mr Serdyukov who is charged with mere negligence will surely avoid actual imprisonment or even will be pardoned as part of the amnesty timed to the 20th anniversary of the Russian constitution. However, there is evidence pointing that Serdyukovs adversaries in the state system will do their best not to let go of the leash restraining the former Minister of Defence, as well as to keep that leash as short as possible. The possible leverage may be the fate of Yevgeniya Vasilyeva that clearly concerns Serdyukov, as well as the open window of possibility regarding other criminal charges that the former Minister may face. It is quite probable that Sergey Ivanov and others are trying to make the campaign against Serdyukov public evidence to the fact that the authorities are actualy doing something to fight corruption (to have something to show to the multinational population of Russia). Thus they are trying to draw attention away from some other corruption cases at the highest level.

reform

of

the

Armed

Forces

according

to

Serdyukov and Putin. In particular: Reference by the SBF. The ranks of praporshik and mitchman were reinstated in July 2013. Supposedly their numbers can be increased to 55,000 personnel. The May 9 celebratory parade once again welcomed the students of Nakhimov military schools. Suvorov and

The Taman and Kantemirov tank divisions were restored (apparently, to facilitate coup detats in Russia). The system of units in the air forces and antiaircraft defence was fully re-established. It was decided to restore the ranks of junior officers who had been reduced to sergeants. The so-called Yudashkins uniform was revoked, the epaulets with insignia returned from chest to shoulders.

The relocation of the Kirov Military Medical Academy from the centre of Saint Petersburg was cancelled; the closing of some of the regional military hospitals put on hold.

With Shoygus appointment it was decided to once again start buying BMD-4M airborne combat vehicles (flatly refused by Serdyukovs team in favour of the Italian Iveco armoured car); contracts with foreign defence industry companies that had already been agreed upon (except for those signed) were cancelled.

In November 2013 Shoygu suggested restoring the historical typology of military colleges academies, universities and colleges - as well as their familiar names. Military colleges once again started admitting students.

While Anatoly Serdyukov was trying on an image of the nations most corrupted official, the new Minister of Defence Sergey Shoygu had taken a number of measures that essentially reversed the

February 2013 saw the reinstatement of the Ministry of Defence Combat Training Department. Combat training departments at arms and branches have also been restored. The Ministry of Defence is withdrawing aircraft maintenance plants from under the control of Oboronservice (the organization that

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became

synonymous

with

Serdukovs into large

situation in the Army to a semantic dead end. In the current economic conditions the state has no extra funds to douse the highly explosive situation in the military with money. That is why we see the onset of scheming aimed at creating new bureaucratic structures that would eventually drown the military reform. For instance, the question of merging the Ministry of Defence with the Ministry of Emergency Situations of the Russian Federation is being seriously discussed at the moment, with an intention to create a unified structure with ber-Minister Sergey Shoygu at its head.

outsourcing) to include them integrated industrial structures.

All these measures were meant to psychologically appease the military people and create an image of a good guy for Sergey Shoygu (as opposed to Serdyukovs bad guy). They are portrayed as fixing the mistakes of the former Minister (that until November 2012 had not been considered mistakes at all, in the political sense). However, as far as the SBF can see, the new Minister of Defence will soon realize that counter-reforms following the five years of Serdyukovs reforms can only lead the

All-around attack on Yakunin and the attempt to replace the executive management of JSC Russian Railways
2013 saw and witnessed a large-scale campaign aimed to replace the executive management of JSC Russian Railways and fire its long-term CEO Vladimir Yakunin (who had occupied this position since 2005). Yakunins current contract expires in the fall of 2014. The battle around Russian Railways reached its first culmination on June 19. Around 8pm the media agencies, including the governmentcontrolled RIA Novosti, announced the dismissal of Vladimir Yakunin, CEO of Russian Railways, and his replacement by the First Deputy Chairman of Board Alexandr Misharin, ex-Governor of Sverdlovsk Oblast. Reference by the SBF. JSC Russian Railways is a vertically integrated Russian company operating the Russian railway network, being the most prominent and essentially the only railway company in the Russian Federation and owner of the most rolling-stock and basic facilities of common use (stations and such). It was founded as successor to the Soviet Ministry of Communications on September 18, 2003,

following the respective decree passed by the Russian government. 987 of the 2046 enterprises that compiled the Ministry of Communications went to Russian Railways (95% of the assets). The technology of transportation as well as the structure and hierarchy of railway management remained unchanged. Russian Railways is one of the three worlds biggest transportation companies. The number of employees is 1,075,000. The companys turnover in 2012 was 1,366,000,000 roubles, the operational profit equalled 67 billion roubles. Vladimir Yakunin has been President of the RR since June 14, 2005. He was born on June 30, 1948, in Zakharovo, a village near Gus-Khrustalny (Vladimir Oblast). He grew up in Estonia - his father served as pilot in frontier troops in the city of Prnu. Yakunin graduated from the Leningrad Institute of Mechanics (presently the Baltic State Technical University) with a degree in aircraft production (mechanical engineering) and

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specialized in design and maintenance of far-range ballistic missiles. He also attended the Red Flag Institute of the KGB (currently the Foreign Intelligence Academy). From 1977 to 1982 he worked as Senior Engineer for the State Council of Ministers of the USSR for External Economic Links. From 1982 to 1985 served as Head of the Foreign Department at the Ioffe Institute for Physics and Technology at the Soviet Academy of Sciences. At the same time he worked as KGB officer in scientific and technical intelligence at the First Chief Directorate of the KGB. From 1985 to 1991 he was doing diplomatic work and served as Second and later First Secretary at the Permanent Representative of the USSR to the United Nations. In early 1991 Yakunin left state service and became Chairman of Board at CJSC The International Centre for Business Cooperation. The purpose of this organization was to turn the Saint Petersburg Centre for Political Propaganda into a business centre. It was there that he started collaborating with Vladimir Putin who at the time was Head of the Committee for External Relations in Saint Petersburg Mayors Office. On November 10, 1996 Yakuin, Putin, Yury Kovalchuk, Nikolai Shamalov and others co-founded the well-known cottage cooperative Ozero. From 1997 to 2000 Yakunin headed the northwestern branch of the Presidents Chief Control Directorate (Putin became head of this organization in March 1997, after he relocated from Saint Petersburg to Moscow). From October 2000 to February 2002 he served as Deputy Minister of Communications. On October 24, 2003 Yakunin was appointed First Vice President of JSC Russian Railways responsible for the finance and economic departments. On June 14, 2005 he was appointed President of RR by decree of the Russian government. The announcements concerning Yakunins resignation cited Medvedevs Press Service. At the time Head of the Russian Government was on a business trip to Irkutsk and Irkutsk Oblast. According to the first announcements, the respective governmental decree had been signed previously.

The only official who directly confirmed the staff replacement at the RR was Misharin, who told Interfax that they may congratulate him and added, quite meaningfully and characteristically, that he was riding a train while giving this interview (apparently to get a better idea of the situation in the railway monopoly). It should be said that the information about the replacement of CEO of Russian Railways was leaked right before the opening of the International Economic Forun in Saint Petersburg (June 20, 2013). Vladimir Yakunin was supposed to make a speech at the Forum (and eventually he did). It is also quite showing that, commenting on the announcements by the media agencies, many leading experts and political scientists in the field confidently spoke of Yakunins resignation and Misharins appointment as if it was a wellconfirmed fact. Many of them claimed that the decision of the government had been long-planned and was totally appropriate. However, around 9.30 pm on June 19 the sensational news was refuted. As Vladimir Yakunin himself told the media, during the announcement about his resignation he was attending Putins seaside residence - the Constantine Palace in Strelna, near Saint Petersburg, where he and the President were having wood-grouse. According to Yakunin, the high-rank company and messmates had laughed at the canard (laughed at the canard while eating wood-grouse - a case of sophisticated bureaucratic humour). Soon enough the Prime Ministers Press Secretary Natalya Timakova hastingly announced that the news of the resignation of RR CEO and appointment of a new one was result of a hackers fraud. The hackers in question had allegedly broken into the inbox of the Government Press Service or created a fake account of the same name that had functioned for a while. Interestingly, the well-hidden hackers were allegedly based in Irkutsk - the same very city that Mr Medvedev had visited right before the sensational staff replacement was announced.

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However, the media observers with at least some degree of analytical thinking came to the following conclusions: The governmental decree replacing the executive of RR actually existed and had been signed by the Prime Minister; because the latter was highly careful (not to say a coward) by nature, he decided to give the green light to the announcement of groundbreaking news when he himself was away from Moscow. It wasnt the first time that he behaved like that: forinstance, the decree announcing Luzhkovs dismissal from the mayoral post was signed by the ex-President during his official visit to China, while Deputy Prime Minister Olga Golodets announced the news of Gennadiy Onishchenkos dismissal during yet another Chinese trip of the state delegation headed by Medvedev (Onishchenko used to be Head of Rospotrebnadzor and Chief Sanitary Inspector of Russia). The decree was a result of a long multi-level struggle of the lobbying parties against the CEO of RR; summary analysis of various facts and trends leads us to think that the main players of this game were most likely Rostechnologies and its CEO Sergey Chemezov, as well as Summa Group and its virtual owners, the Magomedov brothers. Vladimir Putin revoked the decision to fire Yakunin during their wood-grouse dinner. At the same time, there still is a chance of Presidents knowing about the governmental decree in advance; the decision to revoke the decree came after the conversation in NovoOgaryovo. Dmitry Medvedev and his staff reacted to what was untoubtedly their humiliation as government officials in their typical manner, by stoically accepting their fate. The reasons that motivated the abovementioned participants/players to act against Yakunin are as follows:

as far as Sergey Chemezov is concerned, he has always been inclined to expand his influence to the spheres that do not belong to the FEC; a special note should be made as to the business interests of some of Chemezovs associates, e.g. Oleg Siyenko (CEO of Uralvagonzavod).

Comment by the SBF. Uralvagonzavod and RR have been involved in a drawn-out conflict concerning the sensitive issue of rolling-stock. According to some evidence, Putins favourite factory that he had visited twice during his election campaign in 2012, faces an issue of serious overproduction of railroad cars. As a result, Uralvagonzavod has to use specific schemes and buy the majority of cars with their own funds, virtually selling them to themselves. as for the Magomedov brothers (Summa Group), their disagreement with RR concerns Transcontainer. Reference by the SBF. Ziyavuddin Magomedov attended the Economic Department of the Moscow University with the current Deputy PM Dvorkovich (Medvedevs Assistant in 2008-2012). It is not an accident that during Medvedevs presidency Magomedov and his brother had significantly expanded their business. Summa Group is actually considered one of the most prominent business formations of the Medvedevs era. Its most ambitious and notorious project was the reconstruction of the State Bolshoi Theatre with budget amounting to over $1 billion. On October 28, 2011, after a 6-year-long renovation the Bolshoi held a ceremonial re-opening attended by the thenPresident Dmitry Medvedev. Later Peoples Artist of Russia ballet dancer Nikolai Tsiskaridze as well as some other observers were pretty harsh and tough in expressing their opinion about the low quality of the renovation. However, until now the project has not been reviewed. The Magomedov brothers are also close associates of Sergey Chemezov and CEO of Transneft Nikolai Tokarev. Together Transneft and Summa Group control commercial marine ports at Primorsky

25

(Leningrad Oblast) and Novorossiysk. These ports have become a bone of contention, triggering numerous smaller conflicts with Rosneft and Sechin in particular in 2012-2013. Currently even the relations between the associates (Summa Group and Transneft) are far from being ideal. JSC Transcontainer became the main bone of contention for Russian Railways and Summa Group. This company was founded in March 2006 as a subsidiary of RR and is the leading railway container operation in the Russian Federation. The company operates over 25,500 platforms and has its own network of railway terminals at 46 railway stations in Russia. In November 2010 Trancontainer made their IPO (initial public offering).

to the East. However, the transit through Russia accounts for only 1% of trade exchange between the Old World and the Asian Pacific. One of the reasons for this is the lack of a powerful logistics operator in our country. Mr Magomedov intends to occupy that very niche, explained the media. At the same time, the executives at RR were against the privatization of Transcontainer that would have profited Summa Group. In his interview to Business FM radio station Yakunin said: Business FM: You came up with the initiative not to privatize 50% stock of Transcontainer, instead including them as founding interest for a joint company of Russian, Belarusian and Kazakhstan Railways. The other stockholder openly claims that it is against their best interests. Yakunin: Our intentions were in no way intended

At first the share of RR in Transcontainer (50%) was supposed to be privatized. However, the terms and type of this purchase deal had not been finalized due to the disagreements between the officials and the RR. CEO of RR Vladimir Yakunin spoke in favour of selling this stock not until after 2013; however, both the Ministry of Transportation and the Ministry for Economic Development insisted on selling the controlling interest in 2012. The main contestant for Transcontainer was Summa Group. The Magomedov brothers and their partners acquired Fesco Logistics from the former Russian Minister of Energy Sergey Generalov; via Halimedia International Fesco owned 23,7% of Trancontainers stock. The cost of this deal amounted to around $1 billion. Summa Group acquired the another 5% of stock from the market, thus increasing their interest to blocking. If Ziyavuddin and Magomed Magomedov and their company had actually managed to implement their plan and increase their share at Novorossiysk commercial port and Transcontainer, it would have become the biggest logistics company in Russia. There is currently a consumer boom in Asia, meaning that freight volumes shift from the West

to harm the interests of minor stockholders. It was a well-planned step aimed to implement the strategic plan of our President and Government. The essence of this plan is promoting the integration processes on a common economic space and in the Customs Union. In August 2013 Yakunin said that the monopoly was willing to review the possibility of buying Summas share in Transcontainer. According to the experts, the cost of this deal could amount to 11 billion roubles. Rumours that the Summa Group may actually sell Transcontainer shares started circulating in June, after the signing of an agreement between JSC Russian Railways, the Kazakhstan Temir Zholy and the Belarusian Railway. The agreement marked the foundation of the United Transport and Logistics Company (UTLC). Russian Railways intended to move their controlling stock at Transcontainer into this corporation (the same very stock that was originally intended to be privatized by the main contender - the Summa Group). At the time Summa Chairman of Board Ziyavudin Magomedov said that the decision concerning the controlling

26

stock would be finalized after the architecture of the UTLC was clearly outlined. The war against Yakinin in the media started on July 25, 2012. It was then that Reuters media agency (homso Reuters Group) published the inquiry of Andrey Yakunins business activities (son of the CEO at Russian Railways). According to some sources, Reuters still closely follow the affairs of Vladimir Yakunin.

successful family - or should I say clan? - the Yakunins. Not a day without news about their succesful business. Admittedly, in 2013 Vladimir Yakunin sued Sergey Dorenko, seeking protection of honour and dignity, and won. The court even assigned Yakunin a pecuniary recompense of 80,000 roubles. Even more interesting is that soon after the judicial

Then, in the fall of 2012, the campaign had spread to Russia. Its first vehicles in Russia were: the then-Chief of the Russian News Service radio station, one of the most popular Russian anchormen Sergey Dorenko, who lashed out on Vladimir Yakunin with his trademark criticism (the style of his commentary had formed in the late 1990s when Dorenko acquired a reputation of the main TV hitman in Russia); first Sergey Dorenko expressed his negative attitude to Yakunin in special videos on YouTube, and then the same account aired on the RNS; political consultant Marina Litvinovich (who is currently one of the main figures in Mikhail Prokhorovs political campaign). She drew attention to Yakunin and the management of Russian Railways in her so-called second volume of the report Russias Power Families. On September 17 Litvinovich wrote in her blog: Im doing research for the second volume of Russias Power Families. The first volume introduced members of the then Putin government. The website has information on the most significant figures of the previous Presidential Administration (these materials are yet unpublished). Currently many of them still yield power, but there are many others who should be mentioned along the line of Russias Power Families. There is, for instance, one unbelievably

proceedings ended, Dorenko resigned from the post of editor-in-chief at the Russian News Service. The decision was triggered by the appointment of Aram Gabrelyanov CEO of the RNS (the latter is the founder of the Russian media corporation News Media). According to Dorenko, he was not prepared to co-operate with Gabrelyanov and filed his resignation, which was accepted immediately. The Russias Power Families did not attract sufficient attention of the society or JSC Russian Railways. However, the main media attack on Yakunin happened in 2012 and was facilitated by the wellknown oppositionist Alexey Navalny. Numerous publications by Navalny aimed at compromising the CEO of Russian Railways started appearing since June 1, 2012, not long before the woodgrouse dinner. What interested Navalny and his Fund for Fighting Corruption the most was Yakunins dacha (country house) at the Akulinino settement near Moscow. The estate took up 70 hectares, had a 5000-m" steam-room and the so-called fur coat storage facility (this last notion later became a fixture in the vocabulary of the Russian anti-corruption movement). Two things are especially notable in this situation: the oppositionists primary source was the obscure website YaPlakal which previously had posted mainly entertainment materials;

27

the campaign started not long before the early mayoral elections in Moscow and Navalnys decision to take part in them as main opponent of the acting Moscow Mayor Sergey Sobyanin (some reckon that Dmitry Medvedev and his team pursued their own ends in the early elections. We will study it more closely in part 5 of this Report.)

of Mr Browder and executive partner and cofounder of Firestone Duncan. In June 2010 he started revealing some incriminating data concerning the employees of the Russian Ministry of Internal Affairs who, in his opinion, were responsible for Magnitskys death and stealing from the Russian state budget funds. The interaction of Alexey Navalny and Hermitage Capital was never secret. This Russian politician has acted as supporter of the many funds initiatives since 2007. Particularly, he was the one who helped distribute The Russian Untouchables videos revealing the numerous documentary evidence of the inexplicable riches that were suddenly acquired by some of the participants of the Magnitsky case from the Ministry of Internal Affairs and tax authorities. The theory that in his investigations Navalny closely co-operates with Browder and his fund was publicly advanced by the then Deputy Prime Minister Igor Sechin at the meeting of Rosneft stockholders in 2010. The same had been repeated by the ex-Senator and President of the bank Rossiysky Kredit Vitaly Malkin, who in 2013 refused the position of member of the Federal Council allegedly on his own accord, but following Navalnys revealing Malkins Israeli citizenship. Subsequently Malkin openly claimed that the attack on him was instigated by Browder, Navalny being nothing more but its executor. Recently there have been rumours that in the years to come the American version of the Magnitsky List compiled with a certain degree of participation from William Browder will expand and include major state-allied Russian businessmen from Putins immediate surroundings. This will lead to additional discredit for the Putins ruling team, as well as to the creation of a powerful system of leverages and pulling strings that will facilitate striking deals with billionaires of the Putins era. Which is possibly one of the strategic objectives of the owner of Hermitage Capital. Well discuss this in further detail in part 5 of this Report.

After the governmental decree announcing the replacement at Russian Railways was cancelled, Navalny resumed his attack on Yakunin, quoting data on the latters foreign assets as well as the business activities and property of his family abroad. It is worth mentioning that Navalnys efforts were supplemented by the campaign against Yakunin carried out by the anonymous users in the Internet. Particularly, a separate channel appeared on YouTube (YakuninuNet), as well as specialized group in the social network VKontakte, dedicated to all things Yakunin. All that led (and leads) us to think that there was a co-ordinated campaign against Russias main railwayman in the media. Around the same time (end of summer 2013) there were rumours about Yakunins possible replacing Medvedev as Prime Minister (see also part 1 of this Report). Some data show that Navalny got this information (files and materials) from the CEO of Hermitage Capital William Browder, key supporter of the Magnitsky Act. At the same time there is evidence pointing that Browder himself had acquired these files in Russia, from those who would directly or indirectly benefit from Yakunins dismissal. In fact, the same very scheme was used in the case investigating the activities of Serdyukovs former associates at the Federal Tax Service that we discussed earlier (part 2 of this Report). Apparently, the communication between

Hermitage Capital and Alexey Navalny was coordinated by Jamison Firestone, a close associate

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The fate of the Skolkovo Innovation Centre and Skolkovo Foundation

The Skolkovo Innovation Center (the Russian Silicon Valley) is one of the main projects of the so-called Medvedevs modernization in Russia closely associated with Dmitry Medvedev and Vladislav Surkov. (In part 1 of this Report we have explained why the Medvedevs modernization has nothing to do with the classic definition of the word modernization.) Soon after the publication of Medvedevs essay Go, Russia! promoting modernization and stating its objectives (Gazeta.Ru, September 10, 2009) the Russian elites started actively discussing the possibility of creating the Russian Silicon Valley. By this they meant essentially the extraterritorial entity with a specialized taxation and customs regime, no local government and corporate-type regulations for territorial management. For some inexplicable reasons this place was to become a paradise of Russian innovative technology. Unbiased experts understood from the very beginning that the Russian Silicon Valley project was not going to end in anything worthwhile. There were many reasons for that; but the most significant are the two listed below: The economy of Cuts, Kickbacks and Bribery that exists in todays Russia does not and can not possibly provide any consistent demand for innovative technology; in this type of economy main business profits are made by means of relations and connections between corrupted officials, while separate applied scientific achievements required for localized innovations in some spheres and enterprises can be easily imported as ready-made products, which makes the existence of a whole system of similar developments in Russia completely unnecessary. With current development of global communications (the Internet in particular) it makes no sense for all the product/project developers to be concentrated at one spot; For a while it actually seemed that the Russian Silicon Valley would be constructed as part of Akademgorodok in Novosibirsk, or in Dubna (Northern Moscow Oblast) which houses the United Center for Nuclear Research and several high-end industrial businesses. However, Dmitry Medvedev ended the futile doubts and painful speculations in 2011 by choosing to build the innovation town in the village of Skolkovo in the Eastern Odintsovo District of Moscow Oblast, However, the criticism of the Russian Silicon Valley project was pretty discreet, quiet and careful. Moderate criticism can be explained by the following dominating circumstances: High-rank officials, notably the then First Deputy Chief of the Presidential Administration Vladislav Surkov and Presidents Assistant Arkady Dvorkovich, viewed the project as their potential to explore major budgetary funds, as well as manage the funds that will potentially be provided by the resident companies of the so-called Silicon Valley. Russian monetocracy (the allpermeating power of money) makes the chance of securing a cut the most important motivation in making tactical and strategical managerial decisions. The existing Russian science cities (naukograd) that appeared in the Soviet times actually hoped that the Russian Silicon Valley would be constructed within their borders, which could lead to their conceptual and economic revival. one of them could be in Russia, another one in Canada, the next one in Australia and so on, which would not prevent them from effectively communicating with each other while remaining in a familiar place and in familiar environment (which is extremely important, because psychological comfort is one of the vital conditions of a favourable business environment).

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between the Moscow Ring Road and Skolkovskoye Highway. In late Soviet times here stood the country residence of Leonid Brezhnev, General Secretary of the Central Committee of the Communist Party of the Soviet Union; nowadays it was home to the Skolkovo Business School and dachas of some pretty influential Russian politicians and economists, including the First Deputy Prime Minister Igor Shuvalov who sincerely supported the modernization plan. (The latter, according to the data collected by the SBF, had constructed a 7,000-m" residence in place of the former house of Soviet nomenclature which frequently holds parties attended by some prominent representatives of the gay community who are extremely concerned with legal restrictions of promoting homosexuality among the minors in Russia). But even if we put aside the a priori and inherent uselessness of the main Russian innovation centre and consider it useful, the village of Skolkovo is surely the most unsuitable location. Particularly because: the village has no base science and technology facilities; the traffic in Skolkovo is always bordering on the collapse; physical travel of a certain innovative mind from Moscow to Skolkovo and back may take up several astronomical hours. Arkady Dvorkovich, who was Assistant to the President at the time, pointed that the key attraction of Skolkovo to the best world minds would be excellent restaurants and concert halls located at the Innovation Centre. Apparently, the official caught the bug of somewhat nave confidence from his rich businessman friends who think that with a certain sum of money any task can be solved from scratch, even without any clear subjective or objective prerequisites. In the opinion of the SBF, it is, for instance, impossible to create a cluster of best international restaurants in the village in Moscow Oblast, because modern Russia

has no culture of enjoying fine food which requires decades to appear. This culture is non-existent because a typical member of the Russian elite can not tell fine food from bad food, and his criterion for gastronomic value is not the information interpreted by his taste buds but the price. The more expensive the food, the more delicious. (This is one of the symptoms of the so-called syndrome of a hungry childhood plaguing the Russian elite: the unconscious fear that the money is not going to last, as well as the main product that money can buy kolbasa and similar kinds of food). This mentality makes it almost impossible for any substantial number of really good cooks to exist on the gastroeconomic space of modern Russia. As for the concert halls, it is so much easier to see and hear Lady Gaga and alike in London, Sydney or even Prague than in the village of Skolkovo, and no one really understands why a certain innovative mind would travel to a far Russian Innovation Centre to reach that goal. Those criticizing the Russian Silicon Valley also mentioned that 300 hectares of land that were to accommodate the Innovative Centre are too small, and there is almost no feasible way to expand the grounds. However, Medvedev, Surkov and Dvorkovich still chose to have the Innovation Centre built at Skolkovo. The SBF tends to consider the following explanation of their motivation true: influential businessman Roman Abramovich was interested in selling to the state some of the land that was under his control; the land plot in question happened to be located in that very part of Moscow Oblast; the First Deputy Prime Minister Igor Shuvalov was and is still interested in the price of his nearby estate going up; Abramovich and Shuvalov are both interested in improving the facilities in the remote part of Moscow Oblast that hosts their respective homes, as well as extra land to sell, and doing it at state expense.

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Such were conceptual grounds for creating the main geographical object of the Russian Medvedevs modernization. However, under the monetocracy regime such reasoning often dictates political and economic choices of high or even vital importance. Until recently many observers, especially from abroad, could not believe that such reasoning of the authorities can be at all possible, because it seemed so very primitive; however, the year 2013 was a turning point for them and made them believe. Notification by the SBF. Analyzing the special tax regime of the Skolkovo Innovation Centre and efforts of the Skolkovo Foundation to lure resident companies with their funds and innvations into the Russian Silicon Valley, are not among the objectives of this Report. This data can easily be provided by open sources and found in the Internet. At first it was presumed that the Skolkovo Foundation (Foundation for the Development of the Innovation Centre) would be headed by Mikhail Prokhorov. After successfully selling his share at Norilsk Nickel this well-known businessman had acquired some extra cash (he did this in 2008 right before the crisis, selling his share to companies under control of the extremely farsighted investor Oleg Deripaska). However, then it was decided that for the lack of other things to do Prokhorov would enter the political arena and become head of Right Cause political party. (The project ended in failure: in 2011 Right Cause was taken away from the businessman after the party raiding carried out by orders of Medvedev and Surkov by the latters employees). So the Presidents chair went to another major entrepreneur, owner of Renova group of companies Viktor Vekselberg. The latter appointed Alexey Beltyukov his First Vice-President (Beltyukov is a well-known executive manager who used to be responsible for capital development at Renova). This outlined the main direction in the development of the Innovation Centre: constructing a dream town with budget funds.

In the golden age of the Skolkovo Innovation Centre development its chief supervisor was Vladislav Surkov who took the place of the less capable (in existing within the state system) Arkady Dvorkovich. Apparently, at the time Surkov expected that Medvedevs stint as President of the Russian Federation will be renewed in 2012, thinking that he himself was to become Chief of the Presidential Administration. In view of this, the prospects for the Russian Silicon Valley and its management seemed pretty optimistic. Quoting Ilf and Petrov, diamond smoke was rising above the janitors closet. However, the reality was somewhat disappointing for Surkov. 2012 saw the return of Vldimir Putin to Kremlin; Sergey Ivanov and Vyacheslav Volodin were appointed Chiefs of the Presidentional Administration. These two officials did their best to force Surkov out of his top executive positions as well as to unreasoned modernization. As a result, in 2013 the Skolkovo Foundation got involved in a number of high-profile criminal cases. Particularly, according to the data published in Kommersant on February 12, 2013, it came to our attention that the Investigation Committee had instituted legal proceedings against the former Head of Finance Department of the Skolkovo Foundation. According to the investigators, the ex-executive Kirill Lugovtsev had illegally spent 24 million roubles, leasing property from the company owned by his mother. The case also involved CEO of the Skolkovo Customs and Finance Corporation Vladimir Khokhlov. The inquiry on the criminal case began after the audit carried out at the Innovation Center by the Accounts Chamber. The case ended in Khokhlovs being acquitted on July 19; Lugovtsev was presented with a less serious charge of exceeding of his commissions with damage worth 10 million roubles. The Moscow court had sequestrated 30,000 Euros and revise the hastily-adopted and programme of Medvedevs

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Lugovtsevs luxury off-road vehicle (Izvestia, August 22, 2013). On August 22, 2013, Vzgliad (newspaper) announced that according to Viktor Vekselberg, President of the Skolkovo Foundation, the stolen 24 million roubles have already been found and the offence discovered earlier last year. He said that after discovering the theft in June the contract with the respective organization was cancelled, the executive involved in the deal fired and the funds in question returned to the foundation. The Foundation had not disclosed the data at the time because of possible reputational damage, but was forced to do so after the audit carried out by the Accounts Chamber. Next, legal proceedings were instituted against Vice President of the Skolkovo Foundation Alexey Beltyukov who was charged with embezzlement of $750,000 granted to the Just Russia deputy llya Ponomarev for research purposes. Beltyukov was subsequently suspended. (Izvestia, May 15, 2013.) In late October 2013 the Office of the Prosecutor General of the Russian Federation carried out an audit of the Skolkovo Foundation activities and revealed a number of violations. The audit resulted in the drawing and ratification of some necessary documents, repairing contractual damage worth 15 million roubles and filing lawsuits seeking damage repair worth 30 million roubles (Office of the Prosecutor General official website, October 30, 2013). Quite notable is the media campaign carried out in some publications (the wave of October 30-31, 2013 that hit Forbes.ru, Utro.ru, News.ru, Gazeta.ru and others), stating that the Prosecutors audit revealed the inappropriate spending and theft of 125 billion roubles. However, during the whole accounting period the Foundation had received only 50 billion roubles, while lawsuits and demands for refund filed by the Prosecutor General amounted to approximately 50 million roubles, according to

the data posted on their official website (October 30, 2013). A separate high-profile scandal revolved around deputy of the State Duma Ilya Ponomarev (Just Russia political party) suspected by the investigators in misappropriation of Skolkovo funds. Immunity of the deputy helped Mr Ponomarev escape criminal prosecution, at least for now (as of December 17, 2013 - publication date of this Report). However, the attempts of the Skolkovo Foundation to sue Ponomarev were successful. In their review of December 15, 2013 Lenta.ru wrote that the scandal concerning Ponomarevs work at Skolkovo was initiated in April 2013, when Vladimir Zhirinovsky requested to carry out an audit of his opponents business activities, suspecting they were illegal. The audit revealed that Ponomarev received 7 million roubles ($300,000) for his lecturing work, but the Foundation wrote off thrice as much. On August 26 Interfax announced that the State Court of Moscow had partially allowed Skolkovos lawsuit against Ponomarev, demanding that he recover 9 million roubles that the Skolkovo Foundation had paid to him as salary for a course of his lectures. The audit showed that the deputy was unscrupulous in fulfilling his responsibilities. December 15, 2013 marked a wave of publications in the Russian Internet, all with headlines like Ponomarev refuses to give Skolkovos money back (Rossiyskaya Gazeta, Forbes and etc.). The next day an explanation was given: the deputy explained his position as for returning the money to an Interfax reporter. The proceedings are not over yet, why talk about payment now?, Ponomarev said. When the proceedings are over and the court reaches a final decision, we will surely abide by it. It is unlikely that this happens any time soon, though. The observers issued different opinions as to who might be behind the attack on Skolkovo. They even included a rather far-fetched theory that the person intentionally causing trouble for the

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Foundation might be Oleg Deripaska, who has a drawn-out conflict with Vekselberg (his partner at Rusal Group). However, we tend to believe that the attack was aimed at Vladislav Surkov and, to a lesser extent, Dmitry Medvedev, and co-ordinated by the top executives at the Presidential Administration. End of 2013 saw the attack fade, at least on the face of it. The Office of the Prosecutor General of the Russian Federation suddenly announced, that the violations were repaired and there are no legal grounds for a criminal case against the executives of the Skolkovo Foundation (compare to the very recent horrible public accusations and suspicions it was a sudden decision all right). There is evidence pointing that the Office of the Prosecutor General adjusted their stand due to the following circumstances:

Vladislav Surkov left the government which meant that the objectives of the attack had been reached; Surkov had been given a sinecure from the Kremlin, so driving him into the corner meant violation of the system ethics; Vladimir Putin decided not to make a laughing stock of Medvedevs plans to modernize Russia, at least not utterly and irrevocably.

All that does not mean that the Skolkovo Foundation is not going to face any problems with law enforcement any time soon. However, now it is obvious that the Innovation Centre is a strategic failure. The dream town has nothing to offer except for limited potential for corruption. The Skolkovo Project is dead - at least in the meaning and sense that have been given to it in 2010-2011.

The persecution of banks following the change of management at the Central Bank of Russia
The fall of 2013 saw several meaningful scandals concerning the countrys banking system. September marked the withdrawal of license from Pushkino commercial bank. (This bank was associated with the notorious businessman Alexey Alyakin, who earned himself quite a fame in 2013, having played one of the title roles in a scandal revolvong around funds of the ex-developer Sergey Polonsky who allegedly sold his business to Mr Alyakin and then changed his mind. Apart from other extensive funds, Pushkino swallowed around $200 million most probably beneficiated by Polonsky, who currently resides in Cambodian prison and has to use all his remaining business wit to support his two actual wives - of the Russian-Ukrainian and (junior wife) Khmer descent respectively.) In November the semi-legendary Master Bank lost its license. It had substantial funds in private deposits (over 46 billion on the day of license withdrawal) and a large network of ATMs in Moscow. The SBF should specially note that ATMs of Master Bank, located at many stores, hotels and such, allowed not only withdrawing cash from plastic card accounts, but also exchanging cash. The rate of exchange from dollar and Euro to rouble was always pretty good. Which in itself caused some suspicion: if the bank can allow such favourable rates, it means that its activities are somewhat mysterious, and mysterious activities like that can lead an institution to serious trouble and upheaval any day. Which was exactly what happened. Apparently, the banks collapse was caused by its extensive cashing of funds. Reminder by the SBF. Master Bank was known not only as a large player in the market of cashing services, but also as participant of some highprofile, scandalous or semi-scandalous events. Particularly, for several years the bank had been involved in a drawn-out conflict with one of its

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debtors, Domodedovo Airport. The opponents were using all their lobbying resources as leverage for this confrontation. In 2010-2011 there was much talking about Master Banks association with Vladislav Surkov (aka Aslanbek Dudayev). Deputy of the State Duma Vladimir Ulas (member of the Communist Party of the Russian Federation) even sent a request to law enforcement agencies in order to find out whether it was Master Bank who funded semi-political projects associated with Surkov (the Nashi youth movement and etc), providing a total sum of $90 million annually. According to the data collected by the SBF, on learning about the deputys request Surkov got really angry, and Ulas had to revoke his letter. All this, however, does not provide any substantial grounds for thinking that Mr Surkov had actually taken part in any of Master Banks schemes: it is quite possible that the institution was merely cashing funds for some of his projects. (Unfortunately, Russian politics is still the sphere for shady and grey financing.) Master Bank also expertly used its employees resonant surnames; the bank had at different times employed Alexey Patrushev, son of the former Chief of the Federal Security Service and current Secretary of the Security Council of the Russian Federation, and Igor Putin, Vladimir Putins first cousin. However, when the fateful day came, people with resounding surnames were unable to save the bank. Apparently because there was nothing they could do, in spite of having influential kin. There is evidence pointing that there were no hidden coowners with unprecedented political authority at the bank. This financial institution with its compliant ATMs had been under personal control of its President Boris Bulochnik (born in 1949 in Vinnitsa) and members of his family. In the days following the withdrawal of the banks license Chairman of the Central Bank Elvira Nabiullina openly stated that the bank had serviced shadow economy, and the report by the Central Bank quoted by Interfax said that the banks recovery was unachievable because of its highly criminalized activities. It was not an accident that right before the fate of Master Bank was finalized Mr Bulochnik

Senior had left for Israel and for evident reasons is not coming back any time soon. In the opinion of the SBF, Bulochnik and members of his banking family might have applied for Israeli citizenship well in advance. In early December licenses were withdrawn from Investbank, Project Finance Bank and Smolensky Commercial Bank (the latter has nothing to do with the once famous Alexandr Smolensky, former owner of SBS Agro bank that went bankrupt in distant 1998). Of the abovementioned financial institutions one deserves our special attention. Investbank was under control of Pyotr Chuvilin, owner of Spartak hockey team. Mr Chuvilin has long been known as a large player in the market of specific banking. Among his memorable activities in the last decade was participation (to a certain degree) in the conflict between the Federal Security Service and the Ministry of Internal Affairs, concerning the control of Moscows most prominent cashing institutions. Chuvilin facilitated the arrest of Dmitry Tselyakov and Alexandr Nosenko, officers of the Ministry of Internal Affairs who were investigating the problems of cashing funds in Moscow. The high-profile scandal that followed in 2009 revealed serious contradictions between various law enforcement structures as for estimating the efficiency, integrity and transparence of different types of cashing of the socalled monetary funds. Apparently, Governor of the Kaliningrad Oblast Nikolai Tsukanov was (is) also associated with Investbank. On the eve of the banks license withdrawal Mr Tsukanov was microblogging on Twitter, saying that the Central Bank has no issues with Investbank and the license would not be withdrawn. By this head of the region once again reminded the observers of the need to legally prevent major officials from frequenting social networks. One careless comment posted while slightly inebriated or in similar condition, might bring about irreversible political and economic consequences. When in September 2011 it became clear that Dmitry Medvedev was leaving his Presidential post, web users started joking

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(albeit seriously) that too much microblogging definitely leads to ones losing their jobs. The SBF strongly recommends that the representatives of all branches of authority at all levels remember that. Meanwhile, members of Spartak hockey club pretended that without Investbank they would be totally and forever ruined. Veteran players of Spartak mourned for Chuvilins financial institution. However, the analysis carried out by the SBF clearly reveals that these tears are not going to impress the Central Bank of the Russian Federation whose officials are tough in implementing their regulatory mission. As one of the most important rules of the world financial system goes, one does not cry over spilt milk. The Deposit Insurance Agency of the Russian Federation is going to part with a great bite of its funds: the compensations to depositors of Pushkino amount to around 20 billion roubles, depositors of Master Bank are to receive over 30 billion, while the collective compensation for depositors of Investbank, Project Finance Bank and Smolensky Commercial Bank amounts to approximately 51 billion roubles. The Central Bank of Russia announced its readiness to provide extra funds for the Agency, is needed. The Deposit Insurance Agency now has the opportunity to take unsecured loans from the Central Bank and then use them to pay compensations to the depositors. The respective decree was signed on December 2 by President Vladimir Putin. This new law allows the Deposit Insurance Agency to take five-year loans from the Central Bank to replenish the Fund of Compulsory Deposit Insurance. Apart from that, the State Duma was presented with the bill that increases the amount of full insurance compensation of bank deposits from 700,000 to 1 million roubles. The respective debates will start in the spring of 2014.

Famous banker, public figure and co-owner of the National Reserve Corporation Alexandr Lebedev who is currently doing public work in Tula Oblast as penalty for physically attacking the abovementioned Sergey Polonsky on air on NTV (in 2010), was actively involved in a public discussion of the banks whose licenses had been withdrawn. On December 13, 2013 he wrote in his popular blog: Its too late to put the Russian banking system on a drip: only hemodialysis will help. New executives of the Central Bank are clearly aware of that too. Today I have learned that the license has been withdrawn from Investbank (as well as from the Project Finance Bank and Smolensky Bank). Experts had warned us about that a month ago. They are no clairvoyants. But for the specialists who can not be tricked by fake accounts its evident that the money had been stolen from the banks and there is just no way to cover the hole amounting to tens of billions of roubles. So must we overlook it or worse, like in the times of Ignatyev and Alyakin, cover their misappropriation? This month Ive heard enough talking along the lines of do nothing and everything will just go away. There were threats (naturally) from the swindlers and their protection racketeers. Some news of the suffering of the banking community from the recent days: The rumours about possible trouble at Investbank and its shutting down are ungrounded, says Governor Nikolai Tsukanov on his Twitter. Today I personally spoke with Investbank executives. The license will not be revoked, there are no issues with Investbank, wrote head of the region. The Bank of Russia should stop their wave of license withdrawals because they lead to the mass shutting down of lesser banks. Such is the opinion expressed by Boris Titov, spokesman for the

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business people, says Interfax. Titov explained that smaller credit organizations are virtually swept away from the market because the depositors withdraw their funds from them, following license withdrawals elsewhere. He added that the campaign against

two indispensable supplementary activities of any muddy pseudo-banking. So what should we do? The only way out of this situation is blood transfusion. This is exactly what the new Chief of the Central Bank Elvira Nabiullina is doing now. The task shes facing is very challenging. Not a bit less challenging than the one I was facing with the campaign against gambling business in the State Duma. The institution that was supposed to keep order in the banking market and prevent swindlers from entering it the Central Bank controlling authority has either overlooked the situation intentionally for the last several years, or covered the criminals deeds. No drip can repair that; what we need is hemodialysis. Please do not try to frighten me by panic and the domino effect. Truly reliable banks will survive even if all depositors are to come tomorrow and withdraw their money at once. This happened to us at the National Reserve Bank, when after the unprecedented audit by the Central Bank (130 inspectors headed by a certain Captain Pitukhina) clients started withdrawing funds. And they withdrew almost everything. We gave them 17 billion roubles, but nothing happened. We became the most reliable world bank with no clients funds whatsoever. Surely, we were left with no liabilities and no business, but our reputation meant more to us. If the bank fails to return money to the clients, then the money have been at least partially appropriated. For instance, Pugachev at Mezhprombank appropriated everything and took 75 billion roubles; Ivashchenko from the Russian Capital took 5 billion roubles (15%); Romanov from Elektronika appropriated 11 billion (30%); Borodin in Bank Moscow took some modest 14%, but these 14% amounted to 200 billion roubles! There were also Ablyazov, Alyakin and the like. There is no point in keeping these black holes afloat. The Central Bank no longer wants to be their accomplice (or plant in prison speak). Actions by the Central Bank are extremely tough and fast, because all the slacks and extra time delay the inevitable collapse of the bank whose

unscrupulous bankers undermines peoples trust in the banking system, and lesser banks are the first to take the blow. In the end their licenses will be withdrawn as well, because they will be no longer able to meet their obligations. Titov explained that lesser banks are also important for the economy and losing this business would be wrong. The spokesman also announced his intention to address the Central Bank, requesting to cut [smaller credit organizations that have been experiencing difficulties] some slack and give them some extra time. I can perfectly sympathize with the Governor whose people and small businesses worry about their money trusted with the popular bank (perhaps even the Gov himself and his companions have money in these banks or even receive some cuts with the clients money). I can also understand spokesman Titov. Protecting his business from raids of corrupted officials from the law enforcement is dangerous or, in Titovs own words, scary (Ive been trying to reach him on the phone for the last six months, for instance). Banks are part of our economy, and rather important at that. They are like the circulatory system feeding our organs and tissues, allowing them to grow and overcome obstacles. Some of these banks are reliable. Other are not banks at all, judging by their tiny assets and capital they will not survive without an envelope and cashing. Which of them Mr Titov is trying to defend? The system itself is infected. Many banks, instead of drawing in deposits and giving out loans, transferring payments and living legally, are turned into usual cheating schemes by their owners, whose only aim is to collect as much clients money as possible and steal it. Along the way many of these banks cash funds and launder money the

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assets have been already stolen, or, worse, contribute to further spread of the disease. Overlooking it means giving the swindlers an opportunity to squeeze even more funds from their clients, acting like a pyramid, i.e. paying interest on deposits by means of newly attracted funds of the clients who were deceived by profitable rates. The bill for this banquet will in the end be brought to the taxpayer, represented by the Deposit Insurance Agency who out of the blue had to pay over a hundred million roubles in two months. This is not an epitaph. This is a catharsis. I used to say that as early as in 2007 in the State Duma, introducing the so-called Kozlovs amendments. The Central Bank failed to implement them, though. By the way, how is Lady Captain Pitukhina so favoured by the First Deputy Chief of the Central Bank? Did she receive her majors rank for attempting to raid the National Reserve Bank? But then, operatives do not have ranks. Also, her supervisor Frolov left the Service.

Chief of the Central Bank (June 2013) and Deputy Chief of Department K of the Federal Security Service Alexey Frolov was fired (July 2013). Frolov was considered the informal supervisor of the cashing business in Moscow. He was dismissed on the grounds of unethical ownership of large property in Italy, at Lake Maggiore. (Apparently, the Russian special service knew nothing of the property before the fateful July.) According to our estimates, the measures

implemented are aimed at creating a new system of informal control over cashing funds. However, tough actions by the Central Bank and law enforcement agencies aimed at some of the banks can be explained by political reasons as well. The undisclosed aim of the Central Banks new policy is to increase the costs of shady cashing in Russia to 10 and more % of the total, i.e. almost make it the size of natural-person income tax. The idea is that it would essentially pointless business. make cashing a

The collapse of Master Bank alone caused shady The analysis of data carried out by the SBF revealed that the attack on a number of banks specializing in shady cashing operations began soon after Elvira Nabiullina had been appointed cashing costs in Moscow to rise by 1,5-2%, from 5 to 6,5-7%. And this is only the beginning of a big journey.

Early mayoral elections in Moscow. Navalnys new role

Direct elections of the Moscow Mayor were the biggest public political event of 2013. On June 4, 2013 the then mayor Sergey Sobyanin announced his intention to resign early which automatically led to mayoral elections being scheduled for September 8 the general election day. On June 5 President Putin accepted Sobyanins resignation and appointed him acting mayor until the assumption of office by the elected mayor. However, both Putin and Sobyanin overlooked the fact that the mayor made his fateful announcement on the birthday of a leading oppositionist Alexey Navalny (June 4), which mystically influenced the further development of the election campaign. Apparently, Sobyanin decided to legitimize his position as mayor of the capital via direct elections. Especially considering that he is not a Muscovite but was born in the village of Nyaksimvol in Khanti-Mansi Autonomous Okrug. For many

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citizens of the capital this fact has some aesthetic and symbolic meaning. However, the SBF tends to think that circles close to Prime Minister Dmitry Medvedev viewed the election campaign in Moscow differently, in the political sense. The early elections of Moscow Mayor had to reveal the true political potential of Mr Sobyanin, as well as uncover the previously hidden layers of compromising material against the latter, so that the mayor forgot about his claims to Prime Ministers Chair and, respectively, the possibility to become potential successor in 2018. In this sense the design of Medvedevs associate clans was implemented to a larger extent. Sobyanin did not manage to sufficiently legitimize his position, primarily due to the typical perestroika situation, when the active part of the society irrevocably and irreversibly loses their trust in authority no matter what the latter does. At first Sobyanins main opponent in the elections was supposed to be Mikhail Prokhorov, highprofile businessman and leader of Civil Platform political party. However, Mr Prokhorov had not dared to participate in the event that could have ambiguous consequences for his popularity and reputation. His formal explanation for the refusal to take part in the elections was the fact that he did not have enough time to bring the registration of his foreign assets (particularly, Brooklyn Nets Basketball Club USA) in line with the new legislation. Informally, though, he admitted that the scary and terrible Kremlin asked him not to participate. Prokhorov also stated that he did not want to be the one to make Sobyanins victory legitimate (making it clear that he did not believe in his own victory, which is in itself a bad sign for an allegedly ambitious politician with far-reaching plans, even if the latter are only for the show). When it was clear that Prokhorov had jumped the wagon, his close associates suggested making his elder sister Irina Prokhorova candidate for mayor. Irina Prokhorova has the reputation of a person who in fact defines the strategic line of conduct and

major tactical decisions of her affluent brother - in particular, his strict adherence to the idea of abolishing matrimony (with females). However, in the end Prokhorova had not dared to start her public political career as well, especially with such a high-profile and potentially scandalous project. Then it was evident that Sobyanins main legitimator (and, at the same time, Medvedevs associate circles best weapon in achieving their goals) would the most popular non-governmental oppositionist Alexey Navalny who had gained great popularity, especially in larger Russian cities, for his successful anti-corruption projects and initiatives. These successful projects RosCut and others were realized under the aegis of Navalnys Fund for Fighting Corruption. It must be noted that in 2009 Navalny won virtual elections of the Moscow mayor, leaving his opponents far behind. The event was organized by Kommersant and Gazeta.Ru. So the idea itself was not new to him. At first Navalny was pretty sceptical about the early mayoral elections in Moscow and said that he was somewhat disgusted by the idea of participating in the special operation to re-elect mayor Sobyanin. However, then he changed his position, which, to our mind, was explained by the following circumstances: the politician was right to think that the mayoral election in Moscow will allow his promotion to a new level. It will finally conclude his journey from the outskirts to mainstream politics and, in case of relative success (2nd best and at least 20% votes), he will be the one to occupy the niche of the one and only leader of the opposition who has no real rivals; Navalny realized that his participation in the elections of the Moscow mayor would most likely provide him mitigation of verdict in the criminal case concerning theft at Kirovles corporation, and subsequent conditional discharge (the politician was main defendant in this case).

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Now we can surely say that Navalny was right on both points. At the Kremlins request, governmental parties in opposition nominated status politicians for the elections. These party executives of the highest level had no real chance to even relatively succeed. The Communist Party nominated Ivan Melnikov, Just Russia chose to nominate Nikolai Levichev; as for Yabloko, their candidate was Sergey Mitrochin. The only choice worth noting is the decision of LDPR (and Zhirinovsky in person) to nominate the 32-year-old deputy of the State Duma Mikhail Degtyarev, who was previously unknown to the public or political circles. Since then there have been rumours (though ungrounded and not supported by enough evidence) that Zhirinovsky sees Degtyarev as his successor and the next leader of LDPR. At first the mayors office had no doubt that Sobyanin is going to impressively win the first round of elections. Navalny or (to a lesser extent) Melnikov were expected to come second, but the acting mayors main opponent was not supposed to get more than 12-15% votes. However, the authorites gave Navalnys election campaign a great headstart. On July 18, contrary to the plan to legitimize the acting mayor and the scheme of the Presidential Administration, the politician was sentenced to 5 years actual imprisonment by the Kirov Leninsky District Court and arrested in the courtroom. The SBF tends to think that it happened because of the lack of coordination between the Investigation Committee of the Russian Federation, that considered it important that Navalny be imprisoned after all (otherwise the Committee would have suffered some reputational and staff losses), and organizers of early mayoral elections. Some data point that Chairman of the Supreme Court of the Russian Federation Vyacheslav Lebedev did not fulfill his mission timely (apparently he was entitled to make the judges in Kirov understand the need for Navalnys conditional discharge). Perhaps it

happened because the latter has no trust with phone conversations. This turn of events caused great indignation with the politically-conscious Muscovites. In the evening of July 18 around 10,000 people gathered for an unapproved meeting at the State Duma walls. The meeting had significantly impressed the Kremlin, Moscow citizens and the progressive humanity in general. That very same day, according to our data, following the repeated and insistent requests of Sergey Sobyanin and Vyacheslav Volodin, Vladimir Putin ordered to release Navalny so that the mayoral elections would be legitimate after all. In his own turn, Navalny who had spent less than a day in prison, declared from behind the bars that he would not take part in the elections if they didnt immediately release him. The message was heard and interpreted properly. Following the petition filed by the Prosecutors Office, penalty for Navanly and his associate from Kirovles Pyotr Ofitserov was changed by the very same Kirov Court. After that for some month and a half Navalny had led a pretty memorable election campaign. Its main features were: ideological vagueness; the politician was portrayed as everyones best friend, with a slight emphasis on fighting the migrants in Moscow; refusal (and quite justified at that) to resort to professional political consultants and their services, that are mostly useless; extensive use of volunteers motivated not by the money or similar small benefits but by the chance to participate in the unprecedented and unmatched campaign; extensive use of visual propaganda and printed propaganda distributed via the trademark Navanly cubes installed in the majority of Moscow districts; historic, election

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the overdramatization of the campaign to a level of true hysteria, its over-the-top emotional content, the thrusting of an ultimatum upon the voter - Vote for Navalny or die! (one of the slogans actually read, if you dont vote for Navalny, he will be imprisoned, and you will be to blame!);

On September 10 the Moscow City Election Committee confirmed the official results of the elections with Sobyanins winning at 51,37% of votes. On the night of September 9 Navalny posted in his blog: the data for his own exit polls (as of 7pm Moscow time). According to this data, Sobyanin was running at 46%, which meant the second round of elections for candidates Sobyanin and Navalny; the data of the independent Observer Alliance, stating that Sobyanin got 49,8% of votes (as of 0.20 am, the counting of data from 1900 election centres; at 2 pm, after processing the data from 2072 election centres, this rate decreased to 49.7%). This also meant that he had not won the first round. After the preliminary announcement by the the Moscow City Election Committee Navalny said that the results were falsified, particularly, by using the votes of homebound voters, which allowed for Sobyanins required numeral superiority. Navalny set up an ultimatum, saying that he would lead the people to the streets if the Moscow City Election Committee refused to accept that the elections were forged. He was ready to file a complaint against the election results in court, which he did. Deputy Chief of Navalnys election headquarters Maksim Kats noted in his blog that the high percentage of votes for Sobyanin in homebound voting and on Moscows attached territories is natural and does not in itself imply that violations were made. Our data shows that this announcement led to Mr Katss immediate dismissal from his position in Navalnys political team. The majority of Navalnys supporters came from the central districts of Moscow, while Sergey Sobyanin got the most of his votes in the so-called New Moscow (Novomoscovsky and Troitsky Administrative Districts).

political choice becoming moral choice: only bad guys dont vote for Navalny.

As for the oppositionist himself, he tried on a new image of a Protestant preacher close to becoming live god (in this context god is supposed to be lowercase - note by the SBF). Compare to this, Sobyanins election campaign was pretty dull and reeked of the standard bureaucratic methods. The main executor of the campaign as to its organization and maintenance was the wellknown IMA Consulting corporation (CEO Andrey Gnatyuk) that had closely co-operated with the Moscow mayors office for quite a while, even when the seat was taken by Yury Luzhkov. In line with the script, the campaign was supposed to be inertial, with no explosions, unexpected turns or sensations. The mayoral staff made it clear that the victory of the acting mayor is predetermined. This line of thought had almost played a bad trick on Sobyanin: his electorate was demobilized, and the low turnout at the elections on September 8 (many of those who were confident that the acting mayor would win and did not want to vote for opposition simply skipped the election) almost led to the second round. The official results of the 2013 early elections of the Moscow mayor are as follows (quoted from Wikipedia): On September 9 the Moscow City Election Committee announced Sobyanins preliminary victory in the first round, with 51,37% of votes. According to the estimates by the Election Committee, Navalny got 27,24% of votes, Melnikov - 10,69%, Mitrokhin - 3,51%, Degtyarev finished the race with 2,68% and Levichev - with 2,79%.

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The

results

of

the

elections

significantly In the opinion of the SBF, the main unofficial results of the elections are as follows: Sergey Sobyanin, whose results were pretty modest, should be humble enough to give up on his far-reaching ambition to become Prime Minister of the Russian Federation, and, subsequently, potential successor of 2018. He had better concentrate on the issues concerning the city of Moscow. In this respect the groups and clans led by Medvedev surely won. The intention to legitimatize the mayors position failed. The election proved what the SBF had been saying for years: the limited legitimateness of the Moscow authorities is defined by the situation and environment of the second perestroika, not by the methods by which the the current mayor assumes power. Alexey Navalny had made a decisive step towards the role and status of the one and only leader of the opposition who has no real rivals. Not only the voters for the authority, but the part of the Russian society in active opposition as well remains hostage of the totalitarian way of thinking. This mentality makes them constantly seek a new leader who has no rivals or sins and should not be asked questions that could make him uncomfortable (unless he becomes a complete disappointment, of course). In this respect in the eyes of his supporters Navalny had played the same very role that Yeltsin in 1989-1991 and Putin during early years of his rule. The idea that the country needs new political culture and the new political system instead of the next good (new) leader who will replace the bad (old) one, is clearly alien to the infected Russian mind. Which is somewhat saddening.

contradicted the results of polls carried out by the leading high-profile sociological organizations - the Russia Public Opinion Research Center, the Public Opinion Fund and Levada Center. Sobyanins results were slightly lower than predicted, Navalnys results slighty higher, the turnout much lower than predicted. Navalnys supporters explain these discrepancies by the strong bias of these sociological organizations, while representatives of the latter claim that the voters had simply changed their minds on the eve of the elections, and offer another explanation in the face of low turnout of Sergey Sobyanins potential supporters who were sure that their candidate would win. The observers estimate that the elections were carried out with relative integrity and the degree of yielding the administrative authority during all stages of the election campaign was substantially lower compare to the previous elections. Guided by his own data that pointed to the necessity and inevitability of the second round, Alexey Navalny urged his supporters to attend the approved (quite in advance) meeting on Bolotnaya Square, demanding that the authorities organize the second round of the elections. The meeting took place and numbered around 25,000 participants (the number of voters who supported the oppositionist equalled over 600,000). The atmosphere of the meeting was celebratory. However, Navalny gave up his demands for the second round even before the meeting ended. Apparently, he felt that this turn of events was inherently unrealistic, while his desire not to go to prison and to secure himself conditional discharge in the criminal case of Kirovles required some conventional behaviour, without him being too much of a nuisance for the authorities. The meeting was primarily intended to demonstrate the ability of the politician to summon crowds.

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The Magnitsky Act, the Magnitsky List and William Browder

As far as the Russian elite are concerned, 2013 became the year of the Magnitsky Act and the Magnitsky List. As we know, the Magnitsky Act was passed by the US Congress in December 2012 together with the repeal of the legendary and tragically obsolete Jackson-Vanik amendment that linked Russias (and previousy - the USSRs) most favored nation status in trade relations to the freedom of emigration requirements. It is considered common knowledge that the Administration of Barack Obama did not support the Magnitsky Act, but in order to repeal the antiRussian Jackson-Vanik amendment was forced to appease congressmen of the oppositional parties by agreeing to pass the anti-Russian act. As we know, the Magnitsky Act applied sanctions to the Russian officials, who were responsible for the death of Sergey Magnitsky, lawyer of Hermitage Capital and partner of Firestone Duncan (he died in Butyrka prison in Moscow in 2009); generally responsible for violating human rights and the law supremacy rule in Russia. Federation. According to Browder, it happened because of his uncompromising stance concerning the rights of minor stockholders and later essential human rights in general (for many observers this version has become commonplace). However, the SBF tends to think (and has expressed the same opinion for a number of years) that trouble for Hermitage Capital and its founder began with a strictly corporate confict with their rival, Renaissance Capital investment bank. The two companies have been competing in the market of Gazprom stocks. In the course of this conflict it came to light that for some years, when the foreign and home stock markets of OJSC Gazprom were legally separate, Hermitage Capital had used specific schemes to acquire stocks of the gas monopoly at internal Russian prices (i.e. much cheaper than if the same stocks had been acquired legally by foreigners), which served the interests of foreign investors. This trade scheme allowed Hermitage Capital to rapidly expand its business in 1999-2004. Subsequently Russian law enforcement authorities charged Browder with stock market fraud and in July 2013 the investment executive was convicted in his absence and sentenced to 9 years imprisonment. Earlier the founder of Hermitage Capital was announced international figutive and his case was handed over to Interpol. However, Interpol decided that Browder was persecuted for political reasons and refused to comply with Russias instruction, particularly, by not detaining the businessman in Sweden in the previous year. In April 2013 William Browder presented the manuscript of his book titled Red Notice (the notice that gives Interpol the authority to detain figutives suspected in criminal offences). The book is a potential bestseller for 2014: it is dedicated to William (Bill) Browder (born in 1964) is grandson to the Secretary General (1932-1945) of the Communist Party of the USA Earl Browder. In 1995-2007 he used to be one of the most prominent foreign investment executives in Russia. In 2006 he was banned from entering the Russian the uncomprimising fight of Browder with the bloodthirsty and corrupted machine of Putins state. The first draft of the Magnitsky List was published on the International Day of Human Space Flight

These people are now banned from entering the United States, while the authorities are entitled to arrest their assets on the US territory. The bill was passed by Senator Benjamin Cardin and Member of the US House of Representatives James McGovern. However, the main lobbyist of the Act is supposedly Willian Browder, founder of the Hermitage Capital fund who had promoted the concept of the act for three and a half years, ever since his address to the Helsinki Commission of the US Congress in 2009.

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(April 12, 2013). On the eve of the publication there were rumours that the List might include several key representatives of different branches of Russian authority and even Putins business associates. The final result did not meet the dramatic expectations, however. The Magnitsky List included (in alphabetic order): Lecha Bogatyrov, implicated as the murderer of former Ramzan Kadyrovs bodyguard Umar Israilov Aleksey Droganov, employee of the 6th Office of the Directorate for Fighting Tax Crimes (presently the Department for Economic Security) at the Moscow division of the Ministry of Internal Affairs Kazbek Dukuzov, acquitted of the murder of journalist Paul Klebnikov, charged with the murder of the Deputy Prime Minister of Chechnya Yan Sergunin Pavel Karpov, a senior investigator for the Moscow division of the Ministry of Internal Affairs Yelena Khimina, head of Moscow Tax Office No. 25 Dmitry Komnov, Head of Butyrka prison, now retired Aleksey Krivoruchko, Tverskoy District Court judge Artyom Kuznetsov, a tax investigator for the 6th Office of the Directorate for Fighting Tax Crimes (presently the Department for Economic Security) at the Moscow division of the Ministry of Internal Affairs Oleg Logunov, Deputy Chief of the Investigating Committee at the Minister of Internal Affairs, presently Chief of the Law Department at the General Prosecutor's Office Andrey Pechegin, deputy head of investigation supervision division of General Prosecutor's Office Sergei Podoprigorov, Tverskoy District Court judge, presently Moscow City Court judge Ivan Prokopenko, Chief of Matrosskaya Tishina prison the the

Oleg Silchenko, a senior investigator for the Ministry of Internal Affairs Olga Stepanova, head of Moscow Tax Office No. 28 Yelena Stashina, Tverskoy District Court judge Dmitry Tolchinskiy, employee of the 6th Office of the Directorate for Fighting Tax Crimes (presently the Department for Economic Security) at the Moscow division of the Ministry of Internal Affairs

Svetlana Ukhnalyova, Tverskoy District Court judge Natalya Vinogradova, Deputy Chief of the Ministry of Internal Affairs Department at the Investigation Commitee

These were the people immediately responsible for legal persecution of Sergey Magnitsky, as well as the allied Chechens Lecha Bogatyrov (who might be associated with Ramzan Kadyrov) and Kazbek Dukuzov. While the Magnitsky Act was being drawn, during the wait that preceded the publication of the first draft of the Magnitsky List and subsequently William Browder had been portrayed as the main spokesman for this issue. He was actively participating in Russian and foreign media discussions hinting or almost openly saying that the Magnitsky Act and its appendices and consequences is actually the birthchild of his own, as well as, to a lesser degree, of Jamison Firestone from Firestone Duncan. The innocent observer therefore might have thought that the subsequent drafts of the fateful list are compiled by William Browder and his companions, as opposed to the American administration, and the former also choose who would be on the list or who could propably relax for now. In their own turn, spokesmen for the Kremlin and circles close to the Kremlin made it clear that the damned Browder invested much of his billions into lobbying the Magnitsky Act. However, according to the information gathered by the SBF, this is far from being true. Most of the businessmans counter agents were motivated by ideological

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reasons and the prospect to improve the situation in Putins Russia. When the situation required live funds, founder of Hermitage Capital turned to outside sources of financing, e.g. George Soross network. While attempting to promote the Magnitsky Act Mr Browder had definitely proven his reputation of a stingy and tight-fisted person. The Kremlins reaction to the Magnitsky Act was disproportionately nervous. Straight after the US Congress had passed the bill the circles close to the Kremlin started hysterically demanding the necessity of bringing forward a symmetrical law that would serve as Russias reply. In early 2013 the State Duma passed the so-called Dima Yakovlev Act (unofficially named after the boy who had died in the United States due to his adopted parents criminal negligence). The Act prohibited the adoption of Russian orphans by the US citizens. Whether this Act really served as symmetrical action, we could not say, because the ones that were most harmed by it were Russian orphans. Note by the SBF. We tend to think that the Dima Yakovlev Act was the first measure leading to total prohibition of foreign adoption in Russia, lobbied by the Children's Rights Commissioner for the President of the Russian Federation Pavel Astakhov. Astakhovs aim here was not to take revenge on the bloody West but to receive budget funds (allegedly worth $20 billion) to implement the programme called Russia without orphans. Allegedly, the said programme would lead to sufficiently greater numbers of poor Russian orphans to be adopted by Russian families. However, the Minister of Finance in the person of Anton Siluanov nipped it in the bud, deciding that the budget had no money for funding Astakhovs great project. When Astakhov hadnt received the money he wanted, his interest in prohibiting the adoption of Russian orphans by foreigners apparently vanished. Public figures who supported the Dima Yakovlev Act also vanished from the media fronts (stage director Sergey Kurginyan and the leader of the fake movement Russian Mothers

Irina Bergset-Frolova). Alas, such is the cynical reality of the Russian monetocracy. Besides, the Russian authorities invented the Guantanamo List that includes US citizens involved in torture and legal prosecution of Russians (Viktor But, Konstantin Yaroshenko and the like). There are grounds to think that most of the figures in the so-called Guantanamo List do not know about its existence and their role in the recent world history. 2013 marked William Browders extensive lobbying activities in Europe - he was the one to promote adopting the law similar to the Magnitsky Act in the European Union. These activities also spared him any significant expenses (as our data reveal and contrary to the panicky ideas of Browders opponents from Moscow). They were rather successful as well. In December the European Parliament adopted a resolution supporting the validation of a uniform list of Russian officials involved in the case of Sergey Magnitsky who died in Moscow prison. The people in question were to be banned from entering the European Union; their assets were to be frozen. The European Parliament urges the European Council to adopt the resolution ratifying the uniform list of officials involved in the death of Sergey Magnitsky, who should be facing personal sanctions in the European Union, says the resolution. It was adopted by the European Parliament as part of examination of the report on international human rights and European Unions respective policies. PR service of Hermitage Capital was actively involved in spreading the information about the resolution. As for Browder, he said that if the Council of the European Union submits to the will of the European Parliament, well see the European version of the Magnitsky Act in the year to come (2014 - comment by the SBF). The level of Browders activity in the media increases as the date of publication of the second Magnitsky List is nearing. It will probably see light in April 2014. There are growing rumours that this

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time

the

List

might

include

Chief

of

the

that Browder himself had acquired these materials not from the mythical western private investigators but from the Russian rivals of those whom he intends to purifyingly expose. The most scandalous event for Browder in 2013 was the petition by investigator Pavel Karpov (member of the Magnitsky List) that the latter filed with the Supreme Court of London in January. Karpov accused Browder of slander and claimed that he had nothing to do with Magnitskys death. It is notable that the defendant quite

Investigating Committee of the Russian Federation Alexandr Bastrykin, Chairman of the Moscow City Court Olga Yegorova and some other notable representatives of the Russian establishment. Moreover, the case now concerns Putins major associates, like the CEO of JSC Rosneft Igor Sechin (who had long ago become a symbol of the bloody KGB to the progressive Russian society and a personal enemy of Wiliam Browder) and CEO of Russian Railways Vladimir Yakunin (see also part 3 of this Report). We are unable to estimate the truthfulness of these rumours and leaks, but are inclined to think that their main source is Hermitage Capital. In 2013 Browder was still portrayed as the person who defines the fate of Russian capitals and their factual foreign owners. Soon after the emergency arrest of deposits at the Bank of Cyprus and Laiki Bank by the Cyprus authorities, that harmed primarily major Russian clients, Browder openly claimed that he had consulted the German Ministry of Finance on the issue of laundering money in the banks of Cyprus. By this the founder of Hermitage Capital made it clear that it was he who suggested that the leaders of the European Union should rescue the economy of the Aphrodites island not with clean funds provided by the Northern European taxpayer, but with dirty Russian money taken directly from the banks of Cyprus. His message is clear: I, Browder, can put your name on a number of compromising lists as well as exert influence that would lead to the arrest of your capital by European (and subsequently American) authorities. Beware of the wrath of gods! In 2013 William Browder provided much incriminating data on prominent members of the Russian elite to professional fighters with corruption in Russia. Particularly, there is evidence supporting that it was Hermitage Capital that provided Alexey Navalny with files on foreign real estate and business interests of Yakunins relations. On the other hand, it is quite probable

unexpectedly for his fans who sincerely consider their idol the uncompromising fighter for human rights - essentially evaded action proceedings. His lawyers urged the Supreme Court to refuse the adjudication of claim due to jurisdictional irregularity, meaning that the proceedings should take place in Russia and not in Great Britain. In the same very grim country where, according to Browder and his associates own opinion. There is no place for fair administration of justice. The Court complied. However, it was a moral victory for the plaintiff, lieutenant colonel Karpov (see, for instance, his interview to Snob magazine). Browder did not dare participate in actual argument because he could lose it. Which means that the businessmans confidence in his own rectitude is sufficiently exaggerated. We tend to consider that Hermitage Capital decided to save on expenses, using this formal excuse to refuse to be involved in legal proceedings. However, the reputation of William Browder was slightly marred all right. There is no doubt that the story of the acts named after (and in the memory of) Sergey Magnitsky spontaneously gained momentum and has become an important phenomenon of political life in Europe and the United States. However, the part played by the Acts original lobbyist is increasingly unclear. It is quite probable that the threat of being included into various Magnitsky Lists and the prevention of that, either real or fake, will turn into a big business exploiting those representatives of

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the Russian elite who are concerned with their assets and legal status in the West. It will help founders of Hermitage Capital to partly or

completely repair the damage they incurred after being forced to stop their activities in the Russian financial markets.

General conclusions
The analysis of these main (and randomly selected by the SBF) conflicts of 2013 confirms that: Modern Russia exists in the conditions of monetocracy (the power of money); political institutions and subjects are given secondary role in moulding the state machinery and implementing the authority. The mythical power vertical has been replaced by the true power horizontal. President Vladimir Putin, though considered a really powerful figure by his friends and enemies, is in many respects hostage of the abovementioned power model and yields increasingly less control over the situation in the elite circles and the country in general. Under these circumstances any internal conflict of the elite has the potential of bringing critical or at least substantial damage to the system. The country is currently undergoing a sad period of the second perestroika, with total distrust to the state system (in this case - to monetocracy and the horizontal, compare to the loss of trust in the Communist Party of the Soviet Union in late 1980s) experienced by the elites and people in general, and heightened levels of social pessimism that is currently reaching its breaking point. The fate of Russias political and economic system and the Russian Federation as a country can not be possibly controlled by the political and economic subjects at this point.

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