Arrest of Putin’s Economy Minister Exposes War in the Kremlin

For years, Putin has played his intelligence and military cronies off against the so-called liberal elites he nurtured as well. Now their fight is out in the open.

On Tuesday Russia woke up to the biggest bribery scandal in years, the arrest of Minister of Economic Development Alexei Ulyukayev. The investigators claimed that they detained Ulyukayev after receiving information from the oil giant Rosneft, a company managed by Igor Sechin, one of Russia’s most powerful men and a close associate of President Vladimir Putin.

By the end of the day, Putin had fired Ulyukayev, saying he had "lost his trust." The accused is to be held under house arrest at least until the new year.

The economy minister allegedly tried to extort a $2 million bribe from Rosneft in exchange for approving the company’s deal purchasing state shares of another oil producer, Bashneft. The Investigative Committee, which brought the charges, said that minister Ulyukayev used his authority to create problems for Rosneft’s activities and that the minister would hear the detailed counts against him in the near future.

The news sounded extraordinary to Russian ears, since Putin is famous for not locking up his top officials, almost regardless of their alleged crimes.

Putin personally appointed Ulyukayev for the minister’s post in 2013, so now the arrest and the allegations against him have raised more than a few eyebrows, not least because the known and alleged corruption in the government usually is attached to the word “billions” not “millions.”

Novaya Gazeta reporter Irina Gordiyenko says she does not believe the story about Russia’s economy minister risking his reputation for such a small bribe: “$2 million is a funny bribe considering the scale of the deal, Rosneft ‘privatizing’ Bashneft; and the investigation does not have any questions for Rosneft? How wonderful,“ Gordiyenko wrote on Facebook.

Russians remember too many examples of shocking state corruption, including those revealed by the independent investigation by Aleksei Navalny, an opposition leader and anti-corruption campaigner, which described in detail how Vladimir Putin’s close friends Vladimir Yakunin, Gennady Timchenko, and Arkady Rotenberg made $15 billion on state contracts during the preparation work for Sochi Olympics.

Typically in high profile criminal cases we might expect incredibly incriminating videos. But did Russia see images of Minister Ulyukayev receiving suitcases stuffed with wads of hundred-dollar bills, the kind featured in movies about the Russian mafia of the 1990s? Nope.

According to Novaya Gazeta sources, the head of the Rosneft security service, former FSB (state security) official Oleg Feoktistov, who had originally investigated the case. The $2 million bribe supposedly was inside a bank deposit box. The report

also said that the minister was not seen anywhere close to the box.

“For now there are too many questions around the Rosneft-Ulyukayev case,” ex-Finance Ninister Aleksei Kudrin cautiously wrote on his blog Tuesday afternoon.

The main question everybody had was whether the arrest of such a high-profile federal official was the bugle call for a battle between the Kremlin’s towers.

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There is a long simmering, almost traditional war for Putin’s Russia going on between officials with epaulets, the siloviki who came from the ranks for the military, the GRU and the KGB, as Putin himself did, and the so-called “liberal elites.”

For a long time Putin has used these factions against each other to maintain checks and balances and keep himself on top. But now the tensions are boiling over.

Yelena Panfilova, vice-chair of Transparency International’s board of dirctors, told The Daily Beast on Tuesday, “I am not surprised to see the minister’s arrest, this is siloviki fighting their war for their beloved power.”

Since the beginning of Russia’s conflict with Ukraine, the so-called Siloviki Clan have been winning that war, and the charges against Ulyukayev are widely seen as another salvo, regardless of the official gloss put on it.

“The Kremlin uses the war on corruption to multiply the battles between the clans,” says Panfilova.

Those who know Ulyukayev insist that he is an honest man in an impossible position, trying to manage an oil-dependent economy crushed by low oil prices and Western sanctions.

Earlier this year Russian bloggers gave the 60-year-old minister a nickname,

“Scuba Diver” for repeating again and again that Russia’s economy had at last bottomed out.

“Everything is very fragile, this is obvious, we are lying somewhere on the bottom,” the minister told the RIA news agency last year.

After the minister’s arrest, one of the bloggers, Sobaka, posted a joke: “Russian citizens are embarrassed to see the amount of the bribe for the minister of economic development and say that it diminishes the greatness and dignity of our rich country.”

But to Russia’s “liberal wing” leaders, including Prime Minister Dmitry Medvedev, the conflict between Ulyukayev and Rosneft is no laughing matter. Ulyukayev was not the only official in Russian government, who opposed Rosneft growing bigger and preferred to see private investors buying Bashneft shares.

The arrest “is strange and astonishing news and a very serious accusation,“ spokeswoman for the Ministry of Economic Development, Yelena Lashkina, told reporters on Tuesday. The head of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, said he did not see much logic in the accusations against Ulyukayev, either.

Why did Russia need to see this messy public scandal, the fight between the most influential men? Some believed it was a warning for everybody.

“The power system strives for survival, while inside it, the main players fight each other,” said Olga Bychkova, a news editor and political observer for the news radio station Echo of Moscow. “That is why some of the rules grow weak and others change, depending on the demands of the current time. Everybody should understand that today absolutely none of them can rely on their privileges, including those who thought they were holy cows. Nobody can be safe any longer.”