Russia: The Kremlin's Anti-Corruption Drive Takes Aim at a Key Oligarch

3 MINS READApr 4, 2018 | 16:23 GMT
Forecast Update

Stratfor's Second Quarter Forecast indicated the Kremlin would use anti-corruption drives to quell dissatisfaction among the populace, but the efforts may also signal the struggles between Kremlin elites — each jockeying for the power to use investigative powers to shore up their own fiefdoms.

As the number of anti-corruption protests increases across Russia, the Kremlin seems to be taking note. One of Russia's key oligarchs with deep ties to Kremlin circles, Ziyavudin Magomedov, was arrested on March 31 (along with his brother and another crony) on charges of corruption. Though the arrests indicate a possible governmental anti-corruption drive, they also point to a larger power struggle among Kremlin elites.

Magomedov rose to prominence from between 2008 and 2012, when former university roommate Arkady Dvorkovich served as a key adviser to President Dmitry Medvedev. Currently, Magomedov runs Summa Group, a murky umbrella company that oversees assets including United Grain Company, Novorossiysk Commercial Sea Port and Yakurtia Fuel and Energy Co. He is also a major investor in high-profile projects in the country including a Hyperloop high-speed train project and a stadium that will host World Cup soccer matches. Summa Group has the reputation of building faulty infrastructure — such as pipelines and roads — and pilfering cash from the government for such projects. Magomedov and his partners are charged with embezzling tens of millions of dollars of federal funds and underpaying Summa's taxes by hundreds of millions of dollars.

The Kremlin has denied any political motive behind the arrests, but the timing lines up well with the increasing role of anti-corruption protests in the country's political discourse. Magomedov's arrest and the highly public nature of his impending trial allow President Vladimir Putin to convey that he is actively responding to calls to combat corruption as he begins his fourth term.

But beyond placating domestic demands, the arrest of Magomedov signals that alliances within the Kremlin may be shifting. After all, Prime Minister Dmitry Medvedev has close ties with Magomedov and has allegedly protected the oligarch in the past. Magomedov's fall adds veracity to rumors that Putin will oust Medvedev after the presidential inauguration in May. Talk of a Cabinet shake-up has been swirling, and Medvedev is likely the top candidate for the chopping block, given how many of the anti-corruption protests have targeted the prime minister personally. Putin may allow him to fall as a concession to the public before selecting as his replacement an economic heavyweight who can push through tough reforms and rebalance power among currently squabbling elites.

Indeed, one of those elites is the head of Russian oil company Rosneft, Igor Sechin, whose aggressive pursuit of powerful energy assets have already led to the arrests of Bashneft chief Vladimir Yevtushenkov and former Economic Minister Alexei Ulyukayev. Sechin, already at odds with Medvedev over the prime minister's refusal to end Rosneft competitor Gazprom's natural gas monopoly, may have been an additional driver behind the Magomedov arrest. For the past five years, the oil czar has been trying to purchase the Novorossiysk oil terminal, but Magomedov and oil pipeline operator Transneft have stood in his way. Sechin has a keen interest in seeing both the oligarch and prime minister fall. The more action Sechin takes, however, the more he threatens Putin with his ability to disrupt order among elites, meaning he may find himself a target sooner or later. 

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