"a vacuum wrapped in a nullity inside an abyss"

I've tended to think of Putin's Russia as a gangster state, but one where the gangsters know where to draw the line - that line being Russian national interest - or at least said interest as perceived by Vladimir Putin. Others, like Mark Steyn, consider the place to be the basket case of basket-cases - "Russia is the sick man of Europe, and would still look pretty sick if you moved him to Africa.".

This (via the excellent FT Alphaville blog) certainly seems to lend weight to the Steyn view ("Russia is facing simultaneously a massive ongoing drain of wealth out of the system") - the travails of one William Browder, a few years ago the largest single foreign investor in Russia via his still-extant (but now London-based) Hermitage Fund.

“Certain Russian officials and private citizens entered into a conspiracy to reregister to themselves three investment companies owned by the Hermitage Fund,” the filing says, with the goal to “apply for and receive fraudulent tax refunds of over $230 million from the Russian Treasury, and finally, to funnel these proceeds through bank accounts in Russia and the United States.”

The filing outlines a familiar story of brazen corruption in Russia. Even Russia’s president speaks often on the topic. Last Sunday, for instance, Mr. Medvedev told a television interviewer that foreigners perceive corruption in Russia to be “without limits.”

What's impressive is that the crooks didn't rob Hermitage (although they were driven out of Russia), but stole tax that Hermitage had already paid to the Russian Treasury. Ripping off unwary foreign investors is a tradition in many countries (I used to bank with the biggest bank in the world - then it bought an aptly named American bank called Crocker) - but in Russia, state functionaries and private capitalists combine to rip off the state. Here's Crowder's open letter :

Simply put, Russia is not a “state” as we understand it. Government institutions have been taken over as conduits for private interests, some of them criminal. Property rights no longer exist, people who are supposed to enforce the law are breaking it, innocent people are victimised and courts have turned into political tools.

Rather than a normally functioning bureaucracy, Russia’s clans fight over control of government positions and the power to use state resources to expropriate assets...

First, the Russian police raided our offices and took all our corporate documents. These were used fraudulently to re-register our investment holding companies into the names of convicted felons. The same documents were used to fabricate backdated contracts the criminals then “enforced” in Russian courts, which obligingly awarded them $974m in fake damages – helped by a guilty plea from lawyers falsely claiming to represent us. The criminals used these fake losses to claim a fraudulent refund of $230m of taxes we had paid in 2006, which was paid out to them in just two days. This despite us reporting the unfolding fraud to Russia’s top law enforcement officials 21 days before the tax money was stolen.

Foreign investors get ripped off all the time in many countries. What makes this story unique is the state officials working together to steal $230m from the Russian state itself. The sharks have started to feed on their own blood.

What makes it even more worrying is that the Russian government took no action to recover the money when we reported the crime. Rather than going after the rogue officials and criminals, the government turned the full weight of the law enforcement apparatus against us for reporting it. They arrested our lawyer, Sergey Magnitsky, who uncovered the tax rebate fraud. He has since been kept in pre-trial detention on cases I believe were fabricated. Six other lawyers who filed criminal complaints or helped discover the fraud were harassed and fled Russia for safety.

Steyn :

What would you do if you were Putin? What have you got to keep your rotting corpse of a country as some kind of player? You’ve got nuclear know-how — which a lot of ayatollahs and dictators are interested in ... That’s the danger for America — that most of what Russia has to trade is likely to be damaging to US interests.

Crowder :

Some may argue the rule of law in Russia should not concern outsiders, but if corrupt officials can steal such a large amount of money from the state with no questions asked, it is not a very big leap for a similar group of corrupt officials to sell some loose Russian military hardware to terrorists, or even help rogue states to acquire nuclear technology. Moreover, when government officials act not in the interest of the state but for themselves, the normal tools of diplomacy simply do not work. It becomes impossible to trust international commitments, be it in the area of arms control or nuclear security. Perhaps there was a line in the past that Russians would not cross, but with the spectacular recent decline in the rule of law, anything is possible in Russia now.

It all makes the mysterious "hijacked" Russian timber ship episode look even more sinister. Is Russia, in Steyn's words, "a vacuum wrapped in a nullity inside an abyss" ?



UPDATE - not that state functionaries colluding to rob the State is exclusive to Russia :

Two tax office workers invented more than 1,400 fictitious children and hijacked hundreds of identities in a £1.2m payments scam, it has emerged. Civil servant John Brian Agdomar and an accomplice, Olanekan Omatayo Ogunmekan, were jailed after being caught using information in the national tax credit computer system to arrange extra payments diverted to a complex network of bank accounts. Agdomar used his job at the Department for Work and Pensions as a cover to access genuine customer records to obtain personal information, allowing the pair to arrange for genuine claims for tax credits to be increased by way of a bogus 'change in personal circumstances'. Records were amended with additional fake children in order to increase the payments but the extra money was siphoned off. In some cases personal records were amended with fictitious disabled twins or triplets to inflate the tax credits as much as possible.

Agdomar is thought to have illegally accessed more than 2,500 customer accounts. Between them the pair fabricated more than 1,400 fictitious children, hijacked hundreds of identities and illegally claimed more than £1.2m in tax credits until they were caught by HM Revenue & Customs (HMRC) investigators. Agdomar, 42, from Hackney, east London and Ogunmekan, 35, from Bethnal Green, London, were arrested by HMRC in 2008.

The UK is importing millions of people from countries with high levels of corruption. No attempt at integration with the host culture is required (and it would now be difficult in a place like Bethnal Green, where there aren't any hosts left to integrate with) . All things being equal, it would be surprising if levels of corruption in the UK did not rise. It's a subject I've touched on before and doubtless will again. But we've a way to go before we manage Russian-style sleaze. Give us time.