In the latest twist in the evolving drama we have been closely following here at TAI, Russian security services came after an American company—Amway—in Moscow. FSB officers, accompanied by Federal Tax Service agents, searched both Amway’s office in the Russian capital, as well as its warehouses in the surrounding Moscow region, RBC reports, citing a statement from the company.
The searches were conducted by the Economic Security Service of the FSB six days after Vladimir Putin had appointed the new head of the Service. Sergey Korolev replaced Yury Yakovlev after a harsh fight between the two departments inside the FSB: Directorate K, a department in the Economic Security Service (SEB), and the 6th Service, a division of the Interior Security Department (USB).
The 6th Service, a secretive department inside the FSB known as the Gestapo for the harsh tactics it employs as an unofficial internal intelligence agency, began its war with Directorate K for control over the financial sector in Russia around a 12-18 months ago. (Directorate K is the watchdog responsible for all financial and bank operations in the country.) The 6th Service is said to have both the protection and the blessing of General Viktor Zolotov, Putin’s long-time head of security who was recently appointed to lead the newly-formed National Guard.
The fight has thus far resulted in much collateral damage: at the very least three governors have been arrested, several businesses have been lost, and there have been two major resignations. In May of this year, the Head of Directorate K, Viktor Voronin, sent in his resignation letter after his subordinate was implicated in a bribery scandal uncovered by an audit initiated by the 6th Service. As RBC notes, Voronin’s boss at the FSB’s Economic Security Service, Yury Yakovlev, was nudged to resign in June, but he declined to do that. This resulted in a second audit, also initiated by the 6th Service, which finally made Yakovlev file his resignation papers.
The new head of Directorate K has not yet been appointed. Sources say it will be the current chief of the 6th Service, Ivan Tkachev, the man who brought down General Denis Sugrobov, the head of the Economical Security and Anticorruption Department of the Interior Ministry, as well as his deputy General Boris Kolesnikov, in 2014. Sugrobov is now in jail awaiting trial, and Kolesnikov fell out of a window of the Investigative Committee headquarters in Moscow under suspicious circumstances.
Yet less then a week after a successful and long-awaited career transition, Korolev struck at an American business in Russia. As the Amway’s PR director told the press, the reason for the searches was never explained to the company. The siloviki only showed a warrant and started taking documents away.
The episode is eerily reminiscent of the what happened in 2007 to Hermitage Capital, William Browder‘s Moscow-based investment fund. Those raids resulted in a $230 million tax theft, the death of Hermitage’s lawyer jailed Sergey Magnitsky, and the enactment of the Magnitsky Act by the United States. It doesn’t seem like much of a coincidence that Directorate K was responsible for issuing the legal findings—that several companies belonging to Hermitage Capital were underpaying their taxes—which triggered the raids.
Founded in 1959, Amway, which is now part of Alticor holdings, manufactures consumer nutrition, beauty and home care products. Amway is ranked No. 30 among the largest privately-held companies in the United States by Forbes. Its sales in Russia for 2014 exceeded 18 billion rubles ($270 million).
Earlier in April, the FSB also searched the offices of Oriflame, another foreign cosmetics company operating in Russia. The Federal Tax Service claimed it suspected the Swedish company of tax evasion.
As we have been writing, the shrinking of Russia’s economy, coupled with the significant enlargement of the military and intelligence services led to the siloviki shaking down more and more businesses in Russia. Foreigners are clearly no longer exempt.