Another week, another major arrest among the siloviki in Russia: on Sunday, the FSB detained deputy chief of the Ministry of Internal Affairs’ Committee for Economic Security and Combating Corruption, Colonel Dmitry Zakharchenko. The special forces officers found $120 million of cash, in dollars bills, during searches conducted in the apartment of a Zakharchenko’s relative in Moscow. An additional $176,000 of cash was discovered in the Zakharchenko’s office. Zakharchenko’s boss,
As Russian state-run media later reported, citing a source in law enforcement, the $120 million had previously been siphoned off from Nota-bank, one of the top 100 Russian banks. Nota-bank’s license to operate was withdrawn in November of 2015. The investigators didn’t say how exactly the money arrived at the apartment of Zakharchenko’s relative, but there is only one real possibility: Zakharchenko was being paid to provide cover for Nota-bank’s illegal activities. According to the pictures taken at the crime scene, the banknotes were brand new and probably from the same series, although it’s not exactly clear where they came from. Usually, such sums of money arrive from abroad: Russian banks in need of U.S. dollars have the cash flown in on airplanes, legally, after withdrawing the money from corresponding accounts at American banks. What happens after is in a legal gray zone and is called in Russian slang an obnalichka, or a “cash-out”.
In Russia, unlike in the U.S., a company cannot withdraw any amount of cash legally without submitting the proper invoices. Furthermore, Russian laws don’t allow businesses to operate normally with foreign counterparts. For instance, a company cannot make an advance payment to a foreign company under a trade agreement—the money can be transferred only when the goods physically arrive in Russia. That is where cash-out operations often come into play. Since any attempt to move more than $10,000 abroad must be declared with authorities, many companies turn to smuggling the money out instead. This also provides a great way for companies (and individuals) to evade taxes: many commit fraud by making up fictitious deals. And of course banks are the major players in such operations.
People in Russia say that laws are written in just this way in order to create a corrupt system in which underpaid public servants can make a decent living by accepting bribes. To whatever degree this is true, the system is thoroughly rotten, and cash-outs are one of many common corrupt practices in Russia. As regular readers know, the financial sector has recently become the cause of a huge fight between various factions of the siloviki, a struggle over who will protect and provide cover for banks and business.
According to an independent Russian financier’s personal estimates, the volume of these kinds of illegal cash-out transactions in Russia may be as high as $300-400 billion per year. Not a single illegal cash-out operation is being conducted without a percentage paid to the siloviki. Under Putin, this has always been either the Ministry of Internal Affairs’ Committee for Economic Security, or the Department K of the Economical Security Service (SEB) of the FSB.
In 2014, General Denis Sugrobov, who was the head of the Ministry of Internal Affairs’ Committee for Economic Security at the time, picked a fight with the FSB. It was officially called a fight against corruption, but in reality it was an attempt to monopolize the market for protection rackets—to become the only siloviki patronage player in the field. The FSB, and the 6th Service of the Interior Security Department (USB), outplayed Sugrobov. He is now in jail awaiting trial, and his deputy, General Boris Kolesnikov, mysteriously fell out of a balcony in the Investigative Committee head-quarters in Moscow during his interrogation. After that, the 6th Service started its own crusade for control over the financial sector protection racket. Its next victim was an interior rival, Department K, and the whole SEB. The USB’s head, Sergey Korolev, was appointed the head of the SEB by executive order of Vladimir Putin in July. Other victims of the 6th Service include the former Federal Customs Service head Andrey Belianinov, former Kirov Oblast governor Nikita Belykh (they both were arrested with hundreds of thousands of cash found on them), the Russian tycoon Mikhail Prokhorov (who was reported to be selling all his assets in Russia), and the Investigative Committee Head Aleksandr Bastrykin.
As we have repeatedly noted, the sterling success of the 6th Service—the most powerful department of the SEB, and probably of the entire FSB—became possible thanks to the personal protection of General Viktor Zolotov, the long-serving Putin bodyguard who was appointed to lead the newly formed National Guard in April.
What happened to Dmitry Zakharchenko has all the hallmarks of another takeover of a rival by the FSB. The reason why it’s being done is not only to get a bigger slice of a pie—or even to get the whole pie—but also to get the ability to increase prices for the protective services. Two years ago, the amount paid to the FSB was about 1.5 percent of every deal. Now it is at 8 percent, and it may increase up to 12-14 percent—what it currently is in Ukraine.
How come such a huge sum of money was found in an apartment? That is common practice in Russia: banks involved in illegal cash-out operations often rent apartments and store cash in them. For security reasons, apartments are frequently changed.
On the other hand, Nota-bank is widely known as a clean financial institution, generally not involved in illegalities such as cash-out schemes. Furthermore, a financier who had a pending deal with Nota-bank six months before the Central Bank of Russia withdrew its license says that the CBR’s report on Nota-bank’s health was clean as a whistle. Nevertheless, half a year later, Nota-bank had lost its license.
Coincidentally, in August of 2015, the Rotenberg family’s Mostotrest development company deposited 1.5 billion rubles in Nota-bank as part of a payment for bank guarantees totaling of 2.2 billion rubles. In October, after the CBR put Nota-bank under provisional administration, Mostotrest asked for its money back. Nota-bank could not pay it out, and Mostotrest filed a report with the police. In August of this year, the owners of Nota-bank, the Erokhin brothers, were arrested and put in jail awaiting trial.
The whole affair is reminiscent of the trial of Domodedovo Airport owner Dmitry Kamenshik. He was confronted with trumped-up criminal charges: the Investigative Committee accused him of being responsible for the 2011 terror attack at Domodedovo because he allegedly had failed to put security checks in place at the entrance of the airport. Needless to say, neither the owners nor the CEOs of various public transport companies have ever been charged with responsibility for any other terror attacks in Russia—and there have been many in Moscow metro alone. Moreover, the Ministry of Transport in Russia, when it was sued by a victim of the attack in the European Human Rights Court, used the official position of the Russian government in its defense, arguing that such heightened levels of security at the airport were required neither by international nor by Russian law. And who are the people most eager to get their hands on Domodedovo, the second largest airport in Russia? The Rotenbergs, who got Sheremetyevo Airport, the largest one in Russia, by executive order of Vladimir Putin last year.
As for the $120 million in cash found in Zakharchenko’s relative’s apartment, the investigators say Zakharchenko had warned Nota-bank management about looming arrests, and had taken the money for safekeeping. But whatever happens to Colonel Dmitry Zakharchenko, the destiny of the $120 million in brand new American bills is as clear as day: the cash will publicly be declared as marked for destruction, and will be secretly appropriated by the beneficiaries of the entire operation against Ministry of Internal Affairs’ Committee for Economic Security.