First thoughts on arrest and sacking of Russian economy minister

Following swiftly from the dramatic news of the arrest of Russian Economy Minister Alexey Ulyukaev comes confirmation of his dismissal by President Putin. 

The wording of the Kremlin’s statement confirming Ulyukaev’s dismissal is short and simple but could not be clearer, and leaves no doubt that he has been dismissed in disgrace:

“Vladimir Putin signed Executive Order dismissing Alexey Ulyukaev of his duties as Economic Development Minister due to the loss of trust.”

It is important to say that so far Ulyukaev has not been convicted of anything, and that he denies the charges of bribe taking brought against him.  His lawyers say that he considers himself to be the victim of a “provocation”. 

The news that Putin has summarily dismissed him for “loss of trust” is however a sure sign that Russia’s president at least accepts the validity of the charges against him.

In truth, though there is much about the case that of necessity at this point remains obscure, the evidence against Ulyukaev appears to be compelling.

Essentially the charge against Ulyukaev is that he abused his position to extort $2 million worth in bribes from the Russian state oil company Rosneft, threatening, unless the bribe was paid, to obstruct Rosneft’s acquisition of 50.08% of the shares in the Bashneft oil company, which is based in the Russian republic of Bashkortostan.

The sale of Bashneft’s shares to Rosneft has not been uncontroversial, and I will take a little time to explain this tangled affair since it is certain to feature prominently in Ulyukaev’s defence. 

Bashnet was originally privatised in 2002 and 2003, following which it was acquired by Sistema, a Russian holding company owned by the Russian businessman Vladimir Yevtushenkov.  Yevtushenkov was arrested in September 2014 on money laundering charges in connection with Sistema’s acquisition of Bashneft, leading to the seizure of 72% of Bashneft’s shares by the Russian government. 

Yevtushenkov was, however, released in December 2014, and in January 2016 all charges against him were dropped, with the Moscow Arbitration Court ordering the government to pay Sistema $1.1 billion compensation for the wrongful seizure of Bashneft.

There was speculation back in 2014 that the person who was ultimately behind the case against Yevtushenkov was Igor Sechin, the powerful CEO of Rosneft, with rumours circulating that Sechin had concocted the case against Yevtushenkov as part of a plan for Rosneft to gain control of Bashneft. 

Needless to say, when it became known this year that Rosneft was indeed acquiring a majority stake in Bashneft after the Russian government decided to sell its stake, those who alleged that Yevtushenkov’s arrest had been arranged by Sechin to enable Rosneft to gain control of Bashneft claimed that they had been proved right.

Given that it was Rosneft which apparently tipped off the police that Ulyukaev was extorting a bribe from them by threatening to obstruct Rosneft’s acquisition of Bashneft’s shares, there will inevitably be those who will say that the case against Ulyukaev is also the result of Sechin’s intrigues, and that far from being a bribe taker, Ulyukaev has fallen victim to a set up fabricated by Sechin.  

Whilst I strongly suspect this will be the defence Ulyukaev and his supporters will eventually come up with, I will now in advance express my skepticism.

Though Sechin is unquestionably a tough and forceful manager of Rosneft, I doubt that he is remotely capable of manipulating Russia’s police agencies in the way this complicated scenario would require.

Also, it seems that Ulyukaev has been under observation for some time because of suspicions he was engaging in extortion and bribe taking, and that his telephone was being tapped since at least the early summer, with Putin being informed of the concerns about him, and being kept regularly updated on the conduct of the investigation into his activities. 

As I have said, the fact that Putin hurried to dismiss Ulyukaev so soon after his arrest, and the wording of the dismissal with the pointed use of the words “breach of trust”, points to Putin believing the charges that have been brought against Ulyukaev. 

Also, whilst we obviously do not have the full details, the Investigative Committee (Russia’s equivalent to the FBI) says Ulyukaev was caught red handed, and that the case against him is foolproof.

When a member of the Russian government is publicly arrested and dismissed in this way, it is inevitable that many search for a political motive behind what has happened.

The most common view in Moscow at the moment is that Ulyukaev’s dismissal is the first step in the purge of the liberals from the Russian government, that many have been long talking about and long expecting.

All I would say about that is that though Ulyukaev is undoubtedly a liberal and is one of the last survivors of the team of liberal reformers brought into the Russian government by Yegor Gaidar, (Boris Yeltsin’s ultra liberal acting Prime Minister of the early 1990s), he has always seemed to me somewhat detached from the dominant liberal grouping within the government, which consists of Kudrin, Central Bank Chair Nabiullina, and Finance Minister Siluanov.

Ulyukaev has long been a critic of the Central Bank’s tough monetary policy, pressing continuously for a lowering of interest rates, and my distinct impression at SPIEF this June was that he and Central Bank Chair Nabiullina were personally on extremely bad terms.  When Ulyukaev’s name was mentioned by a member of the audience at a panel that Kudrin, Nabiullina and Siluanov all attended – but from which Ulyukaev was pointedly excluded – it seemed as if a chill had descended on the room.

In addition, if Ulyukaev really was dismissed as part of some sort of purge I don’t understand why Putin felt the need to go about his dismissal in such a complicated way.  Ulyukaev is neither popular nor a major power broker, and if Putin simply wanted to get rid of him I can’t see why he didn’t just sack him.

Unless more information comes to light that more is involved than appears on the surface, my operating hypothesis will be that Ulyukaev has been dismissed for the reason the Russian authorities have said – because he was caught extorting bribes – and for no other reason than that. 

I appreciate that most people probably won’t agree with me, but until I see some evidence that more is involved, I shall accept the official explanation, which seems to me sufficient to explain what has happened. 

More should become clearer when Putin announces who Ulyukaev’s successor will be.

There is one further point I do, however, want to make.  This is that though there is a general blanket assumption that corruption is rife in high places in Russia, the sort of people who get caught with their hand in the till invariably seem to be liberals: former Prime Minister Kasyanov, former Defence Minister Serdyukov, former governor of the Kirov region Belykh, and now of course Ulyukaev.

Whether that is because liberals are more prone to corruption than other officials – as many Russians believe – or because liberals are more likely to be targeted for corruption investigations than other officials – as many liberal commentators in Russia and outside claim – the fact speaks for itself.  For the record my opinion is the former.