Russia politics: Former economy minister receives strict sentence for bribery

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Country Data and Maps
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Economist Intelligence Unit
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Politics, News Analysis, Recent developments
Political Geography
Russia

On December 15th a Moscow court found Aleksei Ulyukaev, a former minister for economic development, guilty of soliciting a US$2m bribe from Russia's largest state-owned oil company, Rosneft. Mr Ulyukaev, who insisted throughout the case that he had been framed, was sentenced to eight years in prison and fined Rb130m (US$2m). His trial and conviction have prompted considerable speculation, as the alleged payment was small relative to the size of the deal that it was supposed to facilitate. In addition, it is doubtful that Mr Ulyukaev had enough political muscle to extort a bribe from the head of Rosneft, Igor Sechin, who has a close relationship with the president, Vladimir Putin. Although the impact of the affair on Mr Sechin's position is unclear, Mr Ulyukaev's downfall does mirror the fading influence of the liberal bloc within the government, which bodes poorly for policy reform in what we expect to be Mr Putin's fourth presidential term in 2018-24.

Mr Ulyukaev was arrested on November 15th 2016, accused of receiving a US$2m bribe. According to the Investigative Committee, the main federal investigative authority, Mr Ulyukaev demanded the bribe in return for the Ministry of Economic Development giving its approval for Rosneft to acquire a controlling stake in Bashneft, a mid-sized oil producer that was nationalised in 2014. Mr Sechin claimed that he tipped off the Federal Security Service (FSB) about Mr Ulyukaev's request for a bribe and that he and Oleg Feoktistov, the head of Rosneft security and an ex-FSB official, transferred a specially marked bag containing cash to Mr Ulyukaev with the full knowledge of the security services.

Mr Ulyukaev insists that he was framed; Mr Sechin refuses to testify

During his trial Mr Ulyukaev protested his innocence and argued that he had been framed by Mr Sechin. Mr Ulyukaev said that he thought that the bag contained expensive bottles of wine and sausages, not cash, and professed that he had little influence over the Bashneft privatisation decision, which was agreed by the government prior to his meeting with Mr Sechin. Under press scrutiny of his controversial role in the Ulyukaev affair, Mr Sechin refused to testify in person during the public trial, despite four separate attempts by the court to subpoena him. As a result, Mr Sechin's evidence was eventually dismissed by the judge. The court heard testimonies from a top Rosneft security official and from the FSB general in charge of the case. It also reviewed recordings of Mr Sechin's conversations with Mr Ulyukaev on November 15th 2016.

Based on past high-level corruption cases, such as that of the former defence minister, Anatoly Serdyukov, and given the rather tenuous evidence presented by the prosecution (following the dismissal of Mr Sechin's testimony), Russian political and legal experts expected Mr Ulyukaev to receive a symbolic, perhaps even suspended, sentence. The issuance of an eight-year prison sentence was unexpected and has possible implications for Russia's political and business circles.

Populism or new rules?

The conviction of Mr Ulyukaev could benefit Mr Putin's presidential campaign, with some observers even thinking that Mr Ulyukaev's trial served to show Mr Putin's efforts to fight corruption. Opinion polls indicate that almost 60% of Russians and more than 70% of those who closely followed the Ulyukaev trial considered him guilty and expected him to be punished. The anti-corruption campaigner, Aleksei Navalny, has led several anti-government protests across Russia in 2017. Mr Ulyukaev's conviction therefore allows the government to satisfy popular opinion and combat Mr Navalny's rhetoric by portraying itself as taking steps to fight corruption, including at the top of the government.

However, many Russia observers have speculated that the conviction may also send a message to those who are gearing up for an intra-elite power struggle during what may be Mr Putin's final term as a president. Still, the Ulyukaev case could undermine the foundation of Mr Putin's bargain with the Russian elite, which demands loyalty to the president (and no meddling in politics) in exchange for legal security. That said, it is also possible that Mr Putin had reasons to question Mr Ulyukaev's loyalty, particularly after Mr Ulyukaev's offshore accounts were exposed in the Panama Papers, showing the minister's defiance of government's de-offshorisation policy for senior officials.

Liberals under attack, siloviki on the rise

The court's harsh verdict may represent an attack not only on Mr Ulyukaev, but also on the group of so-called "systemic liberals", or technocrats, in the government. Mr Ulyukaev's arrest originally prompted speculations that the political fortunes of the prime minister, Dmitry Medvedev, were waning ahead of the upcoming post-election government reshuffle. This speculation stemmed from the fact that Mr Medvedev was traditionally associated with the liberal group, although this may currently be a debatable question. However, over the past year Mr Medvedev has moved to bury the hatchet in his long-standing personal rivalry with Mr Sechin and to form a tactical alliance with him, which strengthens Mr Medvedev's chances to serve another term as prime minister.

Mr Ulyukaev's case also weakened the prospects for other liberal reformers like Aleksei Kudrin, the former finance minister turned liberal economic reformist, to claim a meaningful role in the next government. Furthermore, and in addition to making liberal economic reform less likely, the case has delivered a new blow to Russia's business climate, which is already damaged by sanctions and poor relations with the West. Mr Ulyukaev's trial and its disproportionate verdict highlight the unpredictability of the rule of law in Russia.

Finally, the Ulyukaev trial represents a step towards rebuilding the security services' leverage in anti-corruption battles after a more than two-year power struggle within the siloviki (the bloc of politicians with ties to the security or military services), which saw dismissals, trials and the imprisonment of senior anti-corruption officials at the Ministry of Interior and the Prosecutor's Office. The FSB's role in exposing and compromising Mr Ulyukaev points to the consolidation of its power in government circles.

End game

Despite all the symbolism of his trial, Mr Ulyukaev is unlikely to serve his full eight-year prison sentence, as it appears likely that Mr Putin will pardon him or reduce his sentence at a later date. However, the legacy of this trial could be similar that of the conviction of Mikhail Khodorkovsky, a former oil tycoon, during Mr Putin's first term in power. Just as the Khodorkovsky trial redefined relations between business and government, Mr Ulyukaev's case may do the same for relations between Mr Putin's liberal technocrats and his inner circle.

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