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Corruption In Russian State-Linked Industry And Miraculous Management Decisions

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Corruption In Russian State-Linked Industry And Miraculous Management Decisions

Recently, Russia’s military industrial complex and space industry appeared in the center of several corruption scandals.

On May 15, Investigative Committee chief Alexander Bastrykin said that Billions of rubles were funneled out of Russia’s federal Roscosmos space agency over the past five years in corruption schemes. Last year, investigators uncovered 1.6 billion rubles ($24.6 million) worth of fraud in the Roscosmos and the Rostec. According to prosecutors, fraud involving state-run space and defense corporations totaled $1 billion in 2018.

“There’s no end in sight, billions are stolen,” Bastrykin said. “It’s a very simple scheme: The money is first moved abroad, then the family leaves, and then the defendant follows.”

Meanwhile, it appeared that Yury Yaskin, the director-general of Roskosmos’ Research Institute for Space Technology (NIIKP), fled Russia in the midst of audits and inspections of the satellite and ballistic-missile research center that he headed. Yaskin was sent abroad by Roskosmos for official business in April and did not return when audits started.

The NIIKP is one of the key companies in the industry. In particular, it is responsible for creating ground-based instruments of navigation equipment, capable of determining the location of weapons facilities and military equipment.

On May 14th, the former director of the Russian Experimental Design Bureau Simonov, Alexander Gomzin, was arrested on charges of fraud. He is charged of stealing more than 494 million rubles (7,5 million dollars) from the Defense Ministry.

According to the prosecution, Gomzin, being the Director General of the Design Bureau, and unidentified persons “within the framework of non-fulfillment of obligations under state contracts to perform research and development work by concluding fictitious contracts with legal entities under control, stole money from the Russian Defense Ministry for a total of 494.3 million rubles.”

Since 2014, the experimental design bureau named after M.P. Simonov (the former Design Bureau “Sokol”) has been developing a project for a heavy drone that is intended for solving combat missions in the Arctic and the Altair large attack UAV. The Altair was supposed to be ready by May 2019, but it was not finished. Currently, the project is being transferred to to the Kazan division of the Ural Civil Aviation Plant.

Earlier, the helicopter manufacturing based in Russia’s Republic of Tararstan, Kazan Helicopters, also appeared to be in the center of series of corruption-linked scandals. The company finished 2018 with the net loss of 5.3 billion rubles (over 820 million dollars). Additionally, entities of the JSC Sukhoi Company implicated in several scandals.

The aforementioned cases may serve as a general example highlighting the state of the managing system in many state-linked Russian companies. Nepotism at the highest levels of power and the widespread conspiracy of silence irreparably harm the statehood.

Some experts explain assignments to top state-linked positions of people with bad reputation suggesting that the Russian leadership lacks trusted people. In this event, corruption incidents are being ignored because they allegedly serve as a tool to gain or keep the loyalty of these persons. However, in practice, this often leads to the growing assertiveness and always leads to millions-worth malversations that damage state-linked companies and defense programs.

Another group of experts says that the current situation became possible because of the lack of the proper ideological motivation of the top management. One more explanation is that such situations and scandals appear because of mistakes in the organization of the structure of relations between the state and state-linked companies.

Furthermore, monitoring institutions often evaluate actions of the top management using very formalistic approaches and closing their eyes to entire tendencies.

We can only guess which one of these explanations is the real reason of the high level of corruption in state-linked corporations. However, some personnel appointments set wondering.

On May 13, the sate-owned United Aircraft Corporation (UAC) appointed Anatoly Serdyukov as chairman of the board.

“The board members elected Anatoly Serdyukov as chairman of the board,” the UAC said in a statement, adding that the decision was taken on May 8.

Serdyukov is a former defense minister, who has became widely known for his involvement in the biggest ever corruption scandal in the Russian military. He left his post in 2012 over his role in a multi-million-dollar illegal property scam. He only ever faced one minor charge, however, and his case was subsequently closed.

Background: Since 2007, the country’s defense minister was a civilian official with education in economics, Anatoliy Serdyukov, who was appointed to carry out “long overdue reforms within Russia’s MOD.” Russia’s military operations during the 2008 conflict with Georgia revealed a mass of problems related to troop command systems, obsolete weapons, equipment, and communications.

However, Serdyukov teams actions, particularly those related to the so-called “optimization” of MOD’s property holdings, the closure of military academies and the destruction of the military health care system, caused growing astonishment within the majority of experts and career soldiers. On top of that, Serdyukov deliberately replaced the top leadership of the MOD, appointing civilian specialists from the private sector in the place of career soldiers.

In the fall of 2012, Russian investigative agencies discovered large-scale embezzlement at the MOD and the linked Oboronservis commercial entity. Financial losses were estimated at no less than $100 million, resulting in criminal cases launched against almost 20 individuals, many of whom were close to Serdyukov.

After many inspections and a lengthy investigation that lasted for over a year, Serdyukov was also formally charged with negligence. However, in February 2014 the Main Military Investigative Directorate of the Russian Investigative Committee decided to cease investigating Serdyukov since he was covered by the amnesty issued on the 20th anniversary of the Constitution of the Russian Federation. Other key individuals named in the corruption scandal received insignificant prison terms. MORE HERE

The UAC is the Russian aerospace and defense corporation consolidating private and state-owned aircraft manufacturing companies and assets engaged in the manufacture, design and sale of military, civilian, transport, and unmanned aircraft. The UAC’s total equity in 2016 was 155 billion rubles.

After the 2012 scandal, Serdyukov “miraculously” avoided a proper punishment and vanished in the dark. However, over the past years, he had been carefully and gradually returning to the public stage.

  • In November 2013, Serdyukov became the director of the Federal Research Testing Center for Machine Building of the Rostec.
  • In October 2015, Serdyukov was appointed as an Industrial Director of Rostec State Corporation.
  • In December 2016, Serdyukov entered the board of JSC Russian Helicopters.
  • In 2017, Serdyukov became the chairman of board of directors of JSC Rostvertol and entered the board of the UAC.

However, we want to be optimists and believe that in his second career life, Mr Serdyukov changed his worldview and became a scrupulous person and an effective manager.

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