At Large

There’s No Business Like Russian Business

You thought business regulation in America was bad? Try dealing with Putin's federal security service.

By 9.9.11

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They play for keeps in Russian business. And the organization that polices this rough and tumble realm is none other than the federal security service, the FSB, the lineal descendant of the old KGB. In 2006 the deputy governor of the country's central bank was gunned down when he tried to revoke various banks' licenses. The chief executive officer of one of the private banks that was on the revocation list was charged and convicted of the murder. The investigators of the FSB were prominent in that prosecution even though it supposedly was a matter for the local district attorney -- as all other felony murders are.

Now the new deputy governor, whose responsibilities include supervision of regulations, has decided to resign for what he termed "health reasons." Independent journalists stated that this new top banker was the designated "fall guy" for the politically embarrassing takeover of the Bank of Moscow, whose management was exposed as providing unsecured loans to ousted Moscow mayor Yuri Luzhkov. This longtime feudal lord had become a personal foe of ranking officers of the federal security service who do not approve of private fiefdoms in an environment where they and only they are "the guardian of the state."

More importantly, Luzhkov had made an enemy of a crusading Dimitry Medvedev, who intends to use the concept of cleaning up "the old habits," as he put it, as a centerpiece for his political life. Of course everyone recognizes that none of this would have happened without at least the tacit approval of the man credited by all with the rejuvenation of the FSB, Vladimir V. Putin.

It is clear to most observers in Moscow that the FSB (Federalnaya Sluzhba Bezoposnosti) has returned to the style and authority of the old KGB, albeit with some administrative revisions. In addition, they have now been officially charged with the investigation and control of corruption and management (sometimes the same thing) of key industries and financial institutions.

When Putin wanted to block Mikhail Khodorkovsky's nascent political career funded by the latter's control of the oil/gas giant, Yukos, it was Putin's old KGB friends at the FSB who corralled the upstart. Similarly it was the existence of the FSB's technical and political apparat that forced Russian tycoon Boris Berezovsky to flee the country to his havens in France and the UK. Non-cooperative billionaires are very acceptable public targets -- even though they previously might have been of political value. The expression in Russian is equivalent to "having become too big for their britches."

The list of FSB individual and corporate targets now spreads globally -- much to the consternation of Russia's foreign intelligence service, SVR, (Sluzhba Vneshney Razvedki) that does not enjoy having FSB international operations active in their patch. This is an area of constant fraternal conflict in Russian official missions around the world.

The FSB has a particular interest in all military industrial issues through its counter-intelligence department. Anything involving foreign industrial groups falls into this category and as a result so does joint Arctic exploration activities. For years British Petroleum has been negotiating to be involved in Russian Arctic exploration and only last week learned they had been outmaneuvered when ExxonMobil signed a landmark deal with the Russian petroleum organization, Rosneft.

Before BP could mount a protest, their offices in Moscow were raided by court officers backed up by a team referred to in the press as "armed special forces troopers," otherwise known as spetsnaz, under the direction of a specific highly classified FSB counter-intelligence section. Supposedly proceeding under an order by a West Siberian court, this FSB operation places it squarely in a position of both influencing and controlling BP Exploration & Operating Company activities in Russia.

While Dmitry Medvedev has launched a public campaign to "curb excessive state interference in economy and boost private investment," the security authorities make sure that they keep their hands in all aspects of Russian business. It is not unrelated that the oil giant, Rosneft, that just signed the joint Arctic exploration accord with ExxonMobil, is now the subject of a government divestiture of its sizeable stake in Rosneft. That Russian petroleum firm's status was enhanced when it took over its oil/gas competitor, Yukos, previously owned by Putin's enemy, the now-jailed Mikhail Khordorkovsky.

Vladimir Putin may have been the political instigator of the Yukos takedown, but it was the FSB's business and police powers that placed the government-dominated Rosneft in control of its assets. And it now will be the "pro-reform" Dmitry Medvedev who returns the Russian government stake in the beneficiary Rosneft back into private hands.

Whose hands will those be? Of course they will belong to someone related to the FSB. That organization will ensure the strictly legal change of Rosneft ownership. We now can be confident everything will be on the up and up, and the "right people" will win the business -- Russian style!

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.