The Russia Monitor

Last week, at a regular meeting of the Presidential Anti-Corruption Council, Head of the Presidential Administration Sergei Naryshkin announced the completion of a draft Model Code of Ethics for all public officials (государственные служащие) of the Russian Federation.  The draft Code was published on both the websites of the Ministry of Health and Social Development and the Federal Portal of Administrative Personnel (both versions are identical); the Code can also be found here.  The Code will reportedly come into force in fall of this year. 

The Code is one of several measures aimed at bringing Russia's anti-corruption legal framework in line with recommendations from the Group of States Against Corruption (GRECO), which I discussed here.  Russia is scrambling to comply with GRECO's recommendations ever since Vedomosti revealed that Russia has fulfilled less than half of its obligations, citing an internal Prosecutor General report.  It also comes amid reports that the average bribe size in Russia has more than doubled over the past year (to approx. $1,470), and a public admission from Pres. Medvedev that his War on Corruption has achieved no tangible results.

The Code of Ethics is interesting for several reasons, and may be useful to a number of different audiences.  First, it adds a layer of plain-language rules and principles governing officials that, as far as my research indicates, has not been implemented on a widespread scale in Russia before.  This could potentially aid ordinary Russians in identifying and putting a spotlight on abuses by officials because it creates a non-legal basis upon which they can complain.  Second, the Code establishes a list of "dos and don'ts" for officials that, by extension, can help guide Western companies in avoiding corruption risks where Russian laws are incomplete or unclear.

Here are some of the more interesting provisions of the Code:

• No More Gifts, Entertainment, or Hospitalities for Russian Officials - officials may not receive "remuneration/awards" (вознаграждения) in connection with their official duties.  Remuneration is broadly defined, and includes gifts, money payments, loans, services, payment of entertainment, recreation, or transportation costs, or "any other remuneration."  The only exception is for gifts received during "ceremonial events, official business trips, and other official events" (протокольные мероприятия, служебные командировки, и другие официальные мероприятия), and all gifts received during such events are "state property" and must be handed over to the official's employer.  Note the absolute ban on entertainment and hospitalities, and near-absolute ban on gifts, which is more strict than the vast majority of publicly-available corporate policies.  While a zero-tolerance policy will be easy to adopt on paper, this is going to be a massive headache for many companies.       
• Officials Must Avoid/Declare Conflicts of Interest and Must Inform Their Employer or the Prosecutor's General Office About Corrupt Offers - no definition of conflict of interest is included, which IMHO is a flaw since the phrase itself - конфликт интересов - is entirely imported.  The requirement on reporting corrupt offers is, I believe, included in the Federal Law "On Anti-Corruption Measures."
• Officials May Not Be Rude - among other things, when communicating with citizens and colleagues, officials may not exhibit "a disdainful tone, rudeness, arrogance, false statements, or make illegitimate, unmerited accusations."  The "disdainful tone" and "rudeness" prohibitions will without a doubt be the most difficult to instill and enforce.  Russian bureaucrats are notoriously vicious to the poor soul who happens to need this or that stamp or permit.
• Officials Must Dress Tastefully - perhaps the most-ridiculed portion of the code is the requirement that officials dress in order to "instill in citizens respect for state authorities" and specifically suggests "a common business style that is distinguished by its formal, moderate, traditional and and orderly attributes."  This reminds me of the Gazprom dress code I posted last year and makes me wonder - what's with the obsession over dress codes?  Especially when most lower-level public officials wear uniforms anyway.                
• Consequences for Violations - officials who violate the Code can be punished with warnings and dismissals.  Compliance with the Code is also considered among the criteria when making promotions and other employment decisions.

 Read Kommersant's take on the Code here.
  

For me, this is just Putin being Putin, following a pattern established in the months just before he endorsed Medvedev to be his successor.  Indeed, in August 2007 Putin bared his torso on a fishing trip with the Prince of Monaco, and in September 2007 he made out with a sturgeon.  In August 2008, the PM shot a tiger with tranquilizing dart and in August 2009 he was baring that infamous torso again.  So, one week out from August, maybe Putin is just getting a head start (note: I addressed the darker sides of August in Russia here, just months before the Russo-Georgian War in August 2008).

Here's what Putin was up to this weekend:

Saturday: Putin rode in on a "tricked out bike" (навороченная машина) - his words, not mine - to what is apparently a kind of Sturgis Rally in Sevastopol, Ukraine.  The bike was "tricked out" in that it had three wheels, making it look more suitable for an obese retiree than a robust judo practitioner (his legs can't reach, okay?!).  Putin claimed the bike was a Harley-Davidson but it looked more like a Goldwing.  Below is a video of Putin's comments with English subtitles:


Sunday: Putin spoke about his meeting with the deep-cover spies recently returned from the U.S.A.  Putin made several interesting remarks here.  First, he claimed that he sang karaoke - nay, to a live band - with his fellow former spies.  In Putin's defense, this was in response to a question from a journalist - I guess the spies let it slip that they were singing.  One of the patriotic songs they sang - From Where the Motherland Begins (С Чего Начинается Родина), which you can listen to here.  You can just picture Putin and a couple silovik lackeys, drunk and misty-eyed, churning out this ballad while the Americanized spies stare on in horror, with images of Best Buy and Cheesecake Factory fresh in their minds.  More interesting, however, was Putin's statement that the spies were discovered because of a traitor, who will soon "end up a drunk or drug addict in a ditch."  Putin said that Medvedev already stated that a traitor betrayed the spies, but I do not remember and cannot find where or when he said this - please illuminate in the comments if possible.  Here is Putin's comments regarding the spies:

Update: here is Kommersant's take on Putin's weekend via the intrepid and always-amusing Andrei Kolesnikov.

According to RBC Daily, the Russian Investigative Committee (under the Prosecutor General office) is examining whether criminal charges should be brought against government officials who allegedly received kickbacks with respect to public purchases of Mercedes Benz vehicles.  The Daimler story is now old news - we heard way back in April all about the company's combined $180+ million settlement with the U.S. Department of Justice and Securities and Exchange Commission.  The case was significant because one of the subsidiaries to plead guilty in U.S. federal court was DaimlerChrysler Russia.  The case sparked interest and outrage in Russia and on Russian blogs, exemplified by a post from Alexei Navalny with the simple title - Who Did Daimler Pay?  According to RBC, we will know whether Mr. Navalny's question will be answered within the next month, since the Investigative Committee must make a decision on whether to initiate a prosecution during this time period.

The article also reports that the Investigative Committee is looking into MVD purchases of VW vehicles, which is of course not a member of the Daimler family.  MVD allegedly purchased armored vehicles from VW, which did not meet the security and other standards.  Nevertheless, the vehicles were purchased at a 200% markup.  Like many German corporations, VW has had some corruption problems over the past few years, including the famous use of prostitutes, champagne, and Viagra to secure the support for wage concessions from worker representatives.  These practices began in the mid-1990s and continued through 2005, and it does not stretch the imagination to think that the Investigative Committee is reviewing a similar time period, especially since there was a lot of turnover in Russian officialdom during the same set of years.  Now that Cold War metaphors are back in vogue, you might call this the "Domino Theory" of corruption investigations in Russia.

Below is the article from RBC Daily

	«Дело Daimler» приросло Volkswagen Пока идет проверка закупок Mercedes, силовики начали новое расследование
Как стало известно РБК daily, в Следственном комитете при прокуратуре (СКП) начата доследственная проверка по факту злоупотреблений со стороны российских чиновников при закупках автомобилей у немецкого концерна Daimler-Benz. Максимум через 30 дней должно быть принято решение о возбуждении уголовного дела либо об отказе в возбуждении. Эксперты... Читать далее > Газета РБК daily

When Pres. Obama treated Pres. Medvedev to burgers at Ray's Hellburger last week, I thought he was just giving Dima a taste of the D.C. area's best fast food experience.  But maybe, he was testing his Russian counterpart, by bringing him within a mile of the scene of a massive Russian government-backed crime.  See, Ray's is just down the road from another Arlington business - Travel All Russia LLC - a tourist agency that organizes trips to Russia (apparently pretty good ones by the looks of the website - see Twitter feed here).  The company also owns RussianTrains.com, which sells train tickets to Americans who are too intimidated or linguistically challenged to master the Russian ticket kassa.  Travel All Russia is housed on the second floor of one of those 1/10th strip mall complexes plopped in the middle of nowhere (see picture above).

What is the significance of Travel All Russia?  Well, it is the employer of Mikhail Semenko, who seems to be one of 11 "deep cover" Russian spies arrested yesterday in one of the most spectacular espionage busts ever pulled off by U.S. law enforcement.  Semenko appears to have grown up in eastern Russia, and got his undergraduate degree from Amur State University in Blagoveshchensk.  Semenko is a China specialist, and received a degree from Harbin Institute of Technology; he blogs about China here.  That this is the correct Semenko is corroborated by page 14 of the criminal complaint filed in the Southern District of NY against Semenko and Anna Chapman, where he mentions being in Harbin during 2004 to a federal agent posing as a Russian official (Semenko graduated from the Harbin Institute of Technology in 2004).  The other Russian agent implicated in relation to Semenko is Anna Chapman, who was arrested in Manhattan yesterday (the LinkedIn profile pic strongly resembles the courtroom sketch - see left - confirmed - NY Post has PG-13 pics).  Chapman is the founder of DomDot.ru (Twitter feed here), a Russian-language real estate search engine, and is an alum of the Peoples' Friendship University of Russia; Chapman has a background in finance.

In addition to Semenko and Chapman, nine other individuals have been implicated in the espionage ring so far, with charges against eight filed in a separate complaint yesterday as well (one alleged spy - Christopher R. Metsos - is still at large).

"Illegals" Program

According to the U.S. Attorney's office in the Southern District of NY, the espionage ring was run by Russia's CIA-equivalent, Foreign Intelligence Service (SVR - Служба Внешней Разведки).  The defendants all belonged to a group dubbed "illegals" by SVR.  According to the U.S. Attorney's complaint, SVR illegals are "agents who assume false identities, and who are living in the United States on long-term, deep-cover assignments."  These agents generally receive extensive SVR training before arriving in the U.S., in areas such as foreign languages, agent-to-agent communications, short-wave radio operation and invisible writing[!!], the use of codes and ciphers, the creation and use of a cover profession, counter-surveillance measures, and avoidance of detection.

After training is complete, newly-minted illegals are given new, false identities, referred to as an agent's "legend" (легенда??).  The overarching goal of this program: for the agents to become sufficiently "Americanized" such that they can gather information about the United States for Russia, and can successfully recruit sources who are in, or are able to infiltrate, United States policy-making circles.  In an encrypted 2009 message sent to two of the alleged illegals from SVR HQ - known as the "Center" - the SVR spelled out the mission in typically Russian, ham-fisted language:

You were sent to USA for long-term service trip.  Your education, bank accounts, car, house, etc. - all these serve one goal: fulfill your main mission, i.e., to search and develop ties in policymaking circles in US and send intels [intelligence reports] to C[enter].

Russian Response and Meaning

If this all seems a bit ridiculous to you, do not despair - spy games always are.  In response, the Russian Foreign Ministry simply stated that the evidence contained in the complaints looks "contradictory."  Of course - this could mean any number of things, including that it is contradictory for the U.S. to prosecute Russians for engaging in the same activities as U.S. agents - the 2009 national intelligence budget is $50 billion after all.  Still, I can't imagine how similarly-situated U.S. spies would be treated by the siloviki, who would probably give away an oil company in exchange for such a bust.

Still, the motives and reasoning behind the "illegals" program are far from clear, though nuclear secrets are a perennial favorite.  I wouldn't hold your breath waiting for an explanation (though in-court testimony may provide the next best thing).  Instead, I recommend reading Malcolm Gladwell's review of the book Operation Mincemeat in New Yorker, where he discusses the inherent "contradictions" of spying.  In this context, Gladwell's piece raises the question of how the SVR planned on interpreting the "intels" sent back to the "Center."  Gladwell quotes a 1956 play, Romanoff and Juliet, which is appropriate here:

U.S. Ambassador to General: "We know they know our code...We only give them things we want them to know."
General to Russian Ambassador: "They know you know their code."
Russian Ambassador to General: "We have known for some time that they knew we knew their code.  We have acted accordingly - by pretending to be duped."
General to American Ambassador: "They know you know they know you know!"
American Ambassador: "What? Are you sure?"

Update (6/29)
The final Russian spy identified by federal investigators - Robert Christopher Metsos - has reportedly been arrested in Cyprus. The Cypriot authorities issued a statement on the arrest, and Metsos posted bail after surrendering his travel documents (how is an international spy not a flight risk?).  Cypriot authorities have indicated that they will honor any extradition request for Metsos from U.S. counterparts.  Metsos was allegedly the "organizer" of the various illegals, and had flown to the U.S. in order to pay the embedded agents. 

The amendments to Russia's strategic sectors law - which I summarized in this post - have still not been made public, but here a few other developments.

Article in International Lawyer

I was fortunate enough to co-author the Russia section for the Spring 2010 issue of International Lawyer.  Regular readers of this blog will be familiar with most of my portion, which summarizes the application of the strategic sectors law.  The entire article is a great read and gives a comprehensive overview of legal and business developments in Russia over 2008-09.

Coca-Cola to Be First American Test of Strategic Sectors Law

The most interesting news for the strategic sectors law relates to Coca-Cola's plans to acquire 75% of Russian juice producer Nidan (Нидан), maker of brands such as Moya Semya and Da! juices.  In my opinion, this is a good purchase for Coca-Cola.  First, Russians - of all ages and genders - love their juices.  If you go to someone's apartment, to the extent you are offered a non-alcoholic cold beverage, it is almost invariably juice.  Second, Nidan owns some of the most widely-known brands in Russia.  Finally, Nidan's facilities and equipment are generally newer and more modern; not some refurbished Soviet-era junk you might find in the "commanding heights" industries like minerals extraction, car manufacturing, etc. 

So overall, this seems like a smart strategy on Coca-Cola's part for expanding into Russia, rather than attempting to bring its existing juice brands to Nidan's level (I've never seen Minute Maid for sale in Russia) or to change Russian tastes in favor of soda beverages.  Coca-Cola had previously attempted to compete directly with Russian producers - e.g., its line of kvass launched in 2005, which the company recently started to sell stateside (unlike Russians, Americans will typically drink any water + sugar combination you offer them).

Now, you may be asking yourself, what does a juice company have to do with the strategic sectors law?  According to Deputy Head of the Federal Anti-monopoly Service (FAS) Andrei Tsyganov, it is because Nidan is licensed to do work with food bacteria and the conduct of microbiological research.  This puts Nidan in the general category of industries related to research, production, and distribution of biological weapons.   

The Coca-Cola application has apparently been received but is not under active consideration.  Assuming it goes to the Governmental Commission - and I think it will - this will be the first time an American company has run the strategic sectors gauntlet [that we know about].  But this is not the only reason that Coca-Cola's application is unique and significant.  Indeed, it also (i) is not a purchase by offshore holding companies owned by Russians, which have made up the majority of deals so far; (ii) does not involve the military sector, where deals are often negotiated on a bilateral level, making Commission approval a mere formality; and (iii) does not involve the extractive industries, which have their own peculiar legal, political, and economic factors.  Rather, this investment is by a major global (American) corporation into Russia's promising, yet relatively untapped consumer sector.  Thus, it will be watched closely here in the U.S. as a litmus test of Russia's alleged commitment to supporting foreign direct investment.  My own prediction - Coca-Cola's application will fly through without incident.  After all, the company has promised to invest up to $4 billion in Russia if the country will host the World Cup in 2018, and, most important, Medvedev appears to prefer Coca-Cola (see picture above via ndtv.com).     

Ray's Hellburger - excellent choice, though I doubt the diminutive Dima could finish an entire burger there. BTW, at the end when the two emerge from the restaurant and the crowd cheers Obama, Medvedev's startled reaction is priceless. Maybe he'll learn a thing or two about politics from O.