‘Putin and corruption in Russia: A Whistleblower’s Story’

By

1 – 2pm, Thursday 3rd May 2012

Committee Room 9, House of Commons, London SW1A 0AA

To attend please RSVP to: chris.hawkins@henryjacksonsociety.org

 

One of the most striking characteristics of modern Russia under the reign of Vladimir Putin has been the steady stream of credible allegations of state corruption. U.S. State Department cables from Moscow published by WikiLeaks have characterised Russia as a “virtual mafia state,” and the increased state control of the mainstream media and the undermining of the rule of law has created a culture of impunity in which it is not only disadvantageous, but possibly dangerous, to speak out.

Sergey Kolesnikov, a prosperous businessman, has seen the consequences of high-level corruption up close. In 2010, Kolesnikov shocked many by publicly accusing the Russian government of diverting funds to build a $1 billion mansion—known as “Putin’s Palace.” His accusations have been strenuously denied by the Kremlin, but the revelations had a world-wide impact, and brought much-needed attention to the issue of state-sponsored corruption in the Russian Federation.

By kind invitation of Lord Soley, The Henry Jackson Society is pleased to invite you to a discussion with Sergey Kolesnikov, Russian anti-corruption campaigner and whistleblower. Kolesnikov trained as a biophysicist before becoming the head of the Petromed medical equipment manufacturing company which had been commissioned by the Russian government to work on medical infrastructure projects. Through this commission, Kolesnikov became involved in the arrangements to divert funds towards ‘Putin’s palace,’ and decided to go public with his story in a letter to President Dmitri Medvedev.


TIME: 1 – 2pm

DATE: Thursday 3rd May 2012

VENUE: Committee Room 9, House of Commons, London, SW1A 0AA

To attend please RSVP to: chris.hawkins@henryjacksonsociety.org


Biography

Dr Sergey Kolesnikov is a Russian businessman, a trained biophysicist who had close ties to the Kremlin until 2010. In 1992, Kolesnikov and his colleagues set up a joint stock company to manufacture medical equipment called Petromed. Petromed was involved in high level projects to build Russia’s health infrastructure, through which Kolesnikov claims to have become involved in a scheme to divert funds towards building “Putin’s Palace.” Kolesnikov has said that he decided to come forward with his story when he was instructed to direct funds to “Putin’s Palace” whilst critical public works projects went unfunded.

Transcript:

Lord Soley

Good. Welcome ladies and gentlemen, I’m Lord Soley. I’m chairing this today, you’re a very welcome, very large and very encouraging audience let me say straight away. Shows the public’s interest in the subject, and the importance of our speaker, who as you know is Dr Sergey Kolesnikov, who’s going to speak on the issue of Putin and corruption in Russia. I think like me you will have watched events in Russia before the election both with excitement and alarm in almost equal measure, and I think underneath things in Russia there an awful lot of pressure for change. And where you have people like Dr Kolesnikov here, you recognise that we are lucky to be hearing from who is courageous enough and thoughtful enough to talk about what is happening below the surface in Russia on issues relating to corruption and corruption.

Let me say from a long experience dealing with countries overseas, it is a problem for all societies, but particularly for countries emerging from a period of dictatorship or authoritarian control, because that it is either when the normal systems are not there, or if they are, they break down—though I, like all of you, will be very interested to hear Dr Kolesnikov comment, before I do that, and he will speak in Russian, we have a translator sitting on the right who will translate. He will speak for about twenty minutes then we’ll come to questions. I will ask you to keep questions short, clear and spoken slowly. I will interrupt you if you don’t, so please remember that. Before I start on that, I want to ask Michael Weiss, Co-chair of the Russia Studies Centre at the Henry Jackson Society in London, here to say one or two words. If you’d like to say some words Michael.

Michael Weiss, Co-Chair, The Russia Studies Centre at The Henry Jackson Society

Sure. Yes, this is the second event of a new programme at The Henry Jackson Society, the Russia Studies Centre, actually officially launched today on our website. We have got a whole new module dedicated to research and also for advocating work on behalf of human rights and democracy in Russia. In fact our first report is coming out next week, which is the first comprehensive look at who the Russian opposition are, since the movement from last December, also slightly before that, in terms of anti-corruption campaigners, bloggers, and also these political parties or factions that are now forming in opposition to Putin and the Kremlin. My colleague at the Russia Studies Centre, Julia Pettengill, who’s sat next to me, is the author of this report, so I hope you all do read it and digest its contents, which is very intellectually stimulating and important. Without further ado ill turn it over to begin.

Lord Soley

Thank you very much. Dr Kolesnikov, over to you, and we look forward to hearing your comments. Thank you.

Sergey Kolesnikov (speaking through a translator)

Ladies and Gentlemen, I would like to thank you very much for coming.

(Translation begins)

I shall continue speaking in Russian because my English isn’t sufficiently good to present this in English.

I never thought that I would be involved in politics or speak in the British Parliament. I was born in Leningrad in 1948 in a family that lived through the siege of Leningrad. My father was a military man who fought in the Second World War, and my childhood was spent in memories and memoirs, remembering the siege of Leningrad days that our city lived through. As a child I dreamed of becoming a scientist, and graduating from school, I entered the university, and twenty years after graduation I was involved in science. I went through the usual academic degrees, and after that, the area in which I specialised was unfortunately something that didn’t have any potential at that time in Russia, so I basically went out to work in business.

At the beginning of the 1990s we set up a company, which used our scientific discoveries and various innovations in building medical infrastructure. This was the first time, in 1991, when I met Vladimir Putin, who at the time headed the committee for external relations of the mayor of St Petersburg. So this was a time when St. Petersburg particularly acutely needed both medical equipment and medicines, and so Putin thought of setting up a company, which could import medicines and medical equipment to Russia. This is the time when the PetroMed company was set up. 51 per cent of its shares belonged to the external affairs committee, 10 per cent to the committee of care and 39 per cent to other shareholders. Over the period of five years until 1996 we were actively involved in what I said, which was the import of medicines and medical equipment, and I met several times with Vladimir Putin during this that time.

So when in 1996 Sobchak, the then-mayor of St Petersburg, lost the mayoral elections to Yakovlev, the mayor who followed him. PetroMed was no longer of interest to the mayor of St Petersburg. And this was the time we could actually privatise PetroMed as a company, and my partner Mr Gorelov and both got 50 per cent shares in the company. And this is very important, because Mr Gorelov is both a retired KGB colonel and also a close associate of Mr Putin.  The next stage of our relations starts in 1999, when Putin was appointed Prime Minister of Russia, and this was when Putin invites PetroMed to supply medical equipment and medicines to a number of hospitals.

In 2000, as you all remember, Putin was appointed president of Russia and at the time I welcomed the arrival of this young energetic man, I thought this would be good because he would be involved in transforming the country. Another close associate of Putin’s, and our partner Mr Shamalov and I met in 2001—he’s also a close associate of Putin and he was also at the time the representative of Siemens in Russia. And so he suggested the following scheme. At the time a lot of oligarchs were coming to Putin suggesting that they have got “donations to give him” or “what would you like us to do for you?”, they would ask Mr. Putin. Putin came up with the idea of suggesting to the oligarchs that they should participate in equipping Russian hospitals with different types of new equipment, so this kind of charitable program. And this very scheme started with the largest donation by Roman Abramovich.

On this diagram you can see— I’ll try to be very short, very brief, if you do have questions afterwards I would like to answer your questions rather than spend too long. So the coast or Bank of Hope that Roman Abramovich had set up. So when we met with Abramovich, he in fact wasn’t concealing that fact that this gift of $203 million dollars was actually presented on Putin’s request.

So we had agreed that our organisation would actually sign a donation agreement with our education foundation. The education foundation would sign a contract with the PetroMed company in turn, PetroMed would actually sign a contract with ENPS which is a British company. This was an especially special purpose vehicle in Great Britain for getting tax privileges. So ENPS would then sign contracts with suppliers of equipment, which would then be supplied to different hospitals, but part of the profits would be siphoned off to an offshore company. And from that offshore company would actually go into accounts of other offshore companies, which were actually owned by Mr Shamalov. So basically this money would then be used to buy the shares of the Bank of Russia, but also of the Sogaz, one of the largest insurance companies in Russia at the time. And also would be used to carry out investments in different projects.

The project “South” began in 2005. It started with Putin’s wish to have a leisure or holiday home on the Black Sea coast. The initial idea was to just have a small cottage that would cost about $15 million to build. So in 2005 I actually met Mr Kozhin, who was in charge of the Department of Presidential Affairs. So an agreement was signed with the Department for Presidential Affairs, a plot of land was allocated, and our company started investing money into this project. And so in 2006 a slight shift has changed in the initial plan, of building a rather sort of small cottage of $15 million dollars worth of construction to a palace, which by 2009 had cost $1 billion US dollars to build.

So here we have on this diagram— it is in Russian but you can see the part on the right, which is the financing, the part in the middle, which is ownership, and on the left the construction companies involved in building this palace. So the actual head and administration of presidential affairs was involved in construction. The federal guards service was one of the clients who commissioned this construction, the largest state-owned construction company, SpetzStroi Rossia was actually the chosen constructor builder. There were dozens of meetings I participated in with heads of construction teams and we discussed the construction and nobody had any illusions about who this was actually built for, it was being built for Putin. This is a master plan of the palace, for six people, which has three helicopter pads several tea houses, several sport complexes, swimming pools, leisure centres and so on and so forth. The servants’ quarters; four hotels and, of course, the power supply to the whole palace which is a huge complex.

So this is a satellite photograph, the satellite photograph of this palace, and you can see this road, which was built at the expense of the government, and the whole purpose of the road is as a driveway to the palace. The palace also has its own high voltage electricity line and also a gas pipeline. Everything has been built with the money from the budget. So you can see the village in the upper left hand corner, and the rest is the territory of this palace and the surrounding land. In the local village of Proskaverka they don’t have any gas, and they have real problems with electricity supply, and similarly Gillenshik, which is quite a large town near Proskaverka, also has problems with power supply. But here you can see the satellite photographs with all the different facilities. And this is the second part of the South Project, which is several vineyards and a winery which produces 80,000 bottles per year.

Different views or different photographs of the palace: so a scene from the sea, the inner courtyard, another view of the palace, and yet another one, these are the interiors of the palace more interiors. This is 18,000 square meters, the total area of the palace with a winter garden or winter amphitheatre, where Vladimir Putin likes to entertain his guests and of course artists, actors. This is the main entrance, the main gateway into the palace. Look at these gates, particularly at the symbols at the top. The architect who designed the palace is an Italian architect, Mr Churillo, who has tried to copy to the maximum the symbols of the St Petersburg imperial palaces. If you know the gates to the Winter Palace you would find the same eagle sitting on top of the gates there. Unfortunately this Italian architect is not familiar with Russian history.  This is the storming of the Winter Palace for “Battleship” by Tomkin. No sorry, it was Sergei Eisenstein, this is October. Revolutionary seamen are storming the Winter Palace.

Thank you very much for your attention. If you have any questions I would be happy to answer them.

Lord Soley

Well that was a very real privilege and an eye-opener, and watching that and looking at the pictures I was reminded of a visit I did very soon after the fall of President Ceausescu in Romania, and being taken as a tourist then round the palace that he had built. And it would be quite nice to think that people learnt lessons from that, and hopefully at some stage we will be able to visit that as tourists to see what you shouldn’t do when you take over the government of a country. Questions now, but thank you very much for your courage and convictions, very much appreciate that. As we have such an excellent interpreter, you will be able to speak your questions at normal speed but I would ask you to keep your questions fairly short. Could I have the first question please? Gentlemen here, and then I’ll take some at the back there.

Question 1

[Inaudible]…Who owns property now?

Sergey Kolesnikov [speaking through a translator]

So to begin with, this property was owned and registered to Mr Shamalov and Mr Gorelov, each holding 50 per cent, and then Mr Gorelov sold his part to Mr Shamalov to the tune of $800. Then for about a year Shamalov was 100 per cent owner of this property. And then in Spring 2010 the palace was sold at the cost of $350 million dollars to Mr Ponomorenko. Mr Ponomorenko is the business partner of Brothers Rotenberg, and Brothers Rotenberg are close associates of Putin. At the moment this palace is owned by Cyprus company, but nobody knows who owns the Cyprus company.

Question 2

What is it used for, how often is Mr. Putin there, do we know?

Sergey Kolesnikov [speaking through a translator]

At the moment the palace is standing idle. It’s not used for anything but it’s guarded very, very tightly. It is protected so securely that no one can actually approach the palace; for several kilometres there’s sort of a ring about it that you cannot approach. At the end of August 2011, both Putin and Medvedev sailed as far as the palace and according to local population local residents, actually visited the palace, from the coastal side.

Question 3

[Inaudible]… Why use PetroMed? Why use such a complex scheme?

Sergey Kolesnikov [speaking through a translator]

Of course, the easiest method would be to ask some oligarchs to transfer money into an offshore company, but then you would be obviously showing everyone that you are really corrupt straight away, blatantly. But here it was concealed under noble objectives, because PetroMed in fact supplied lots of Russian hospitals with equipment and medicines. So this project in fact followed two goals, had two objectives: to manufacture new devices and new equipment for Russian hospitals, but to also siphon off part of the profits to offshore companies.

Question 4

Is this just the tip of the iceberg?

Sergey Kolesnikov [speaking through a translator]

I think so, but I’m actually used to talking about things I know myself personally and where I have documental evidence.

Lord Soley

This gentleman here and then this gentleman. I’ll come down to the back end in a minute

Question 5

Two very quick questions. The first is, where is this palace, and have you got a map so we can see where it is geographically speaking?

Sergey Kolesnikov [speaking through a translator]

This palace is 78 hectares of land, a few kilometres off the Proskaverka village on the Black Sea coast. I have my own website, skolesnikov.org, so you’re welcome actually to go on my site and you will see on my website all the references, all the links to satellite photos.

Question 5 [continued]

Presumably this was done with President Yanukovich’s knowledge?

Sergey Kolesnikov [speaking through a translator]

This is in Russia, not in Ukraine. It is the Russian part of the coast, near Sochi.

Question 6

[Inaudible]…Are you afraid of returning to Russia?

Sergey Kolesnikov [speaking through a translator]

I know there is no way back for me to Russia. I really shouldn’t be going to Russia, in fact its’ dangerous enough for me to be here, because I’ve had plenty of warnings that traitors don’t live long, to which I said “how long do they live in Russia?”And I was warned that the active stage will begin after Putin’s inauguration on the 7th of May.

Lord Soley

I’ll take the gentleman there and then the gentleman at the back.

Question 7

What was the exact period when you realised that this was personally for Putin? Why did you decide to make this information public?

Sergey Kolesnikov [speaking through a translator]

I knew that it was built for Putin’s use from the very beginning, from 2005, because the very first meeting with Mr Kozhin, who’s the head of Presidential Affairs Department, started with him saying that we need to build a small humble cottage on the Black Sea coast for Mr Putin. So I never had any illusions about who it was being built for.

Lord Soley

I’ll take this gentleman at the back.

Question 8

[Inaudible]

Sergey Kolesnikov [speaking through a translator]

I agree with you.

Question 9

Thank you my name is Carl Ziegler, I’m a participant of Transparency International here, and I want to congratulate you on your very important exposes and very courageous explanation. I’m curious to know about what you said about an Italian architect being involved, undoubtedly a project this size must have a large number of suppliers— British, American, European suppliers. Could you give us a list or background about some of the people who have benefited from this grotesque project internationally?

Sergey Kolesnikov [speaking through a translator]

All the suppliers of marble, and furniture, and various types of equipment mostly come from Italy. I don’t think they made money that was sort of… they did what they usually do, just their business, supplying the materials and the equipment. But the person I think who did make money on it is Vladimir Putin, and he did it at the expense of the Russian people. Because if you build palaces in a country where you’re short of money to actually provide treatment to children of this country, that is a crime.

Question 10

[Inaudible]…Anti-corruption board formed in Russia, reportedly you left it. Is this an important organisation?

Sergey Kolesnikov [speaking through a translator]

I think it is a noble task to set up all kinds of committees abroad, which would eventually help Russian people, get rid of the yoke of corruption. But it has to be serious work. I left the committee after it had published, without agreeing it with anyone, a long list of about 100 Russian citizens who that committee accused of corruption. I think if you accuse anyone of anything you must have documental evidence of it.

Question 11

Are the Russian opposition parties preferential to Putin’s government, in terms of corruption?

Sergey Kolesnikov [speaking through a translator]

I think its very difficult to talk about political parties in Russia because most of them support this present day regime. However, we have birth of a new generation of young people in Russia. So I pin my hopes for the future of Russia on these young people, because they realise they have no future in the current system, so they have to start a real fight against this regime.

Question 12

I heard Putin is recruiting, 400,000 young people, are being recruited and trained at summer camps, is this true?

Sergey Kolesnikov [speaking through a translator]

See, I don’t think these young people really support Putin, many of them are just young people who want to be together. So in fact it’s not a bad thing that he’s getting them together, because they start thinking once they are together. And okay, it’s fine to set up an army, but sometimes your army could turn against you.

Lord Soley

I’ll cross my fingers for that one.

Question 13

My name is Alex Goldfarb. I read a story in the financial times about a web of offshore accounts was used not just to fund this palace, but also to invest in two types of projects that you showed: one is in the insurance company, one is in …[inaudible]…combined assets I think several billion dollars. Can you elaborate who owns this company and whether all the money …[inaudible]… came from offshore back accounts?

Sergey Kolesnikov [speaking through a translator]

Bank Russia is controlled… Putin’s friends control a 100 per cent stake. If you look at the shareholders list of Bank Russia, first and foremost it’s Yuri Kavalchuk, Mr Shamalov, Mr Timchenko, and a number of companies and nearest friends of Putin. The company Sogaz belongs to the Bank Russia. In fact, the Bank of Russia also owns most of the media, all of the leading TV channels— if you look at the Financial Times you can find the whole scheme outlined there very clearly. So I don’t think you could have a democratic state anywhere in the world where such accusations would be held against the head of state and yet none of the leading channels or leading national papers actually covered it. So the information I’ve presented to you today here, and information anybody has access on this palace to is only available on the Internet. So there is no freedom of speech in Russia today, because you can say whatever you want, but no one will hear, or no one will listen, sorry.

Question 14

A year ago in an interview to Snob newspaper you stated that you felt that your actions are making a change, and within a year of giving that interview, what has changed since then?

Sergey Kolesnikov [speaking through a translator]

I think at the beginning of 2011 no one could even predict what would happen, or even have the slightest idea of what would happen in December 2011, when we had over 100,000 people marching in Moscow in December. Today we live in a completely different kind of country, which has a chance. I’ve written an article which was published by Vedomosti newspaper, which is called “Putin Forever,” in which I analyse all the alternatives he has once he’s inaugurated as president.

There are two paths Putin has: to develop democracy, in which case he will probably end up in prison; or he could follow the Qaddafi route. And this is perhaps the most terrifying option: imagine Qaddafi with a nuclear arsenal in hands. I think this the greatest danger for the entire world. At present, many countries still support the regime which holds power at the moment, and I would like to draw your attention to the fact that long-term this is very, very dangerous.

Lord Soley

Final question, which follows a little from what you’ve said, about the threat to yourself.  Are you aware that in the United Kingdom we have had assassinations and attempted assassinations of Russians? It’s a very serious problem for us since so many Russians come here. Is there anything more we can do to put pressure on the Russian authorities about this? Because it’s hard to believe that its just a group of people acting independently. Is there anything more we can do?

Sergey Kolesnikov [speaking through a translator]

I think this is a very difficult question, because as you know, our government murders people not just in Russia but also outside Russia; murders people who are trying to fight against it. But I think an open society, truth that lots of people are going to be aware of, the real policies of Western states could actually stop this from happening.

Lord Soley

Dr Kolesnikov, it’s been a real pleasure having you here today, and again, one respects the courage of people who can speak out in the way you do, and I think that all of us would be happy to assist. And as I said in the beginning, I had great excitement but also anxiety at the time of the period in the run-up to the election. I could see young people using the social networks, and you could see the rise of political awareness in Russia, growing. One hopes that continues, but one is always slightly alarmed that it might not be allowed to continue, and that’s our problem. The number of people here today indicates the amount of support, and also I think I would like to thank the audience. We managed to get through far more questions than we normally do with these, because you’ve been concise and pointed in your questions; that might be down to my threats at times I’m sure, but there we go. Thank you very much, and thank you very much, and good luck in what you’re doing.

Sergey Kolesnikov

Thank you.

[END OF TRANSCRIPT]

 

HJS



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