Corruption and the Russian Government Reshuffle

commentary

Jun 20, 2024

Russian Security Council Secretary Sergei Shoigu attends a meeting with commanders of troops of military districts, in Moscow, Russia, May 15, 2024, photo by Gavriil Grigorov/Pool via Reuters

Russian Security Council Secretary Sergei Shoigu attends a meeting with commanders of troops of military districts, in Moscow, Russia, May 15, 2024

Photo by Gavriil Grigorov/Pool via Reuters

During the Cold War, Sovietologists tried to discern policy changes by examining which high-ranking members of the Communist Party attended the October Revolution Day celebrations on Red Square. In today's atmosphere of secrecy, deciphering the meaning of the recent changes in Putin's government requires a similar level of speculation, even on the part of specialists.

The most important change in Putin's reshuffle was the appointment of Andrei Belousov as Defence Minister, and the reposting of Sergei Shoigu, his predecessor, to the role of Secretary of the Security Council. However, the reasons for this reshuffle are not entirely clear. Officially, Belousov was appointed to increase innovation in the defence industry. Russia has undoubtedly struggled to develop some of the equipment it wants: it withdrew its most advanced tank, the Armata, from Ukraine after a brief trial, and it has had to turn to Iran for drone-production know-how before building its own factories.

But Shoigu's failings in prosecuting the war, which was supposed to have lasted three days as a “special military operation,” are almost certainly behind his removal, and corruption in the defence establishment also appears to have been a decisive factor. His removal was accompanied by a string of arrests. According to sources cited by Bloomberg, Putin had grown frustrated with corruption at a time when military progress had slowed. Respected analysts have also suggested that Shoigu himself was unprepared for the arrests, and there is speculation that a Soviet-style purge of the ministry is now underway.

Shoigu's failings in prosecuting the war, which was supposed to have lasted three days as a 'special military operation,' are almost certainly behind his removal.

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Presumably Belousov, a member of the so-called economic bloc, has been appointed to achieve Putin's official objective of increasing production and innovation in the defence economy, and he may have a role in overseeing any purge. Yet whatever Belousov's managerial talents, he is unlikely to be able to achieve more than a symbolic changing of the guard.

In the short term, Shoigu's former subordinates, including his deputy, Timur Ivanov, are taking the rap. But, as it turns out, Shoigu himself seems to have retained a role as “coordinator of work on the development of the military industrial complex” including, in the words of Putin, “ensuring the supply of appropriate equipment to the Ministry of Defence.” This means that Shoigu stands to keep some influence over the defence economy, from which he will undoubtedly profit personally. In other words, he has been protected and any purge will, therefore, be limited and selective.

As the recent arrests show, allegations of corruption are a precursor to a change of management in Russia. That is, when corruption is alleged—and especially when the phrase “fraud on a large scale” is used—observers can be quite sure that change at the top is afoot. This has long been the case in Russia's business sphere. Successful entrepreneurs often fall victim to “raiding” (reiderstvo), whereby a variety of means, including prosecution, intimidation, and violence, are used to seize a business, which is then transferred to new owners, usually connected to senior figures in the system (indeed, professional consultancies specialising in distressed assets (problemnye aktivy) play an important role in facilitating the seizure of these businesses on behalf of the Russian elite). The same applies to the political scene. Shoigu's predecessor Sergei Serdyukov was appointed in part to rid the ministry of corruption. He was forced out of the job because of corruption and, like Shoigu, got off lightly.

In other words, corruption in Russia is not a problem that can be eradicated by a change of policy or personnel; it is a function of the system itself. Belousov does not offer a clean slate: recent investigations by the Dossier Center has revealed his financial links to Wagner Group founder, Yevgenii Prigozhin, and evidence of corruption in his personal and family affairs. He may have some short-term impact changing the structures and personnel in the defence industry, but he will not eliminate corruption. Rather, he will be obliged to ensure that his own people take a slice (raspil).

Research has shown that corruption is integral to the way Russia is governed. As Vladimir Gelman has argued, the main characteristic of the Putin system is rent extraction at every level. Formal institutions, therefore, matter only to the extent that they support graft, and who-gets-what is determined informally by the most senior figures in the system. These men—and increasingly, their sons and daughters—are connected through various cadres. Appreciating this is critical to understanding how Russian governance works. Competence is less important than loyalty, and embezzlement is an entitlement commensurate with rank. As such, it is no wonder that the basis of Alexei Navalny's political opposition was anticorruption.

There are obviously limits to corruption: after all, officials cannot be allowed to steal everything. How does it work? According to Simon Kordonsky and Svetlana Barsukova, a market economy coexists with a “resource economy,” in which rights and rewards are distributed to “estates,” or groups with different responsibilities to the centre, such as prosecutors, judges, police officers, the military, and so on. These representatives are entitled, by virtue of their service, to more than those who labour in the market economy. That is, whereas labour is paid in Russia, service is rewarded. Thus, loyalty rather than productivity is the primary economic motivator, and estates are managed not to produce resources but to redistribute them.

It follows that the Russian Minister of Defence may be responsible for creating an effective fighting force, but there is no incentive to create a more efficient one. Rather, the obligation is to ensure that the system supports the minister's personal interests, and those that serve the ministry. Seen in this light, corruption is a means for hiring and firing: Shoigu's team was underperforming and corruption was alleged—if not by him directly—than by the estate he oversaw.

Corruption is a means for hiring and firing: Shoigu's team was underperforming and corruption was alleged—if not by him directly—than by the estate he oversaw.

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It is therefore no surprise that the scale of corruption associated with Timur Ivanov is significant: Navalny reported on his glamourous lifestyle in the first year of the war. It is also unsurprising to see that Lt General Vadim Shamarin, for example, was charged with accepting a bribe of $400,000 (although this is nothing compared to the value of one of Shoigu's alleged properties). Regardless, the point is that corruption is general, expected, and takes place commensurate to position within one's estate. Of course, as these arrests show, corruption is not only the means through which service is rewarded, but it can also serve as the justification for purging certain cadres. As every Russian knows, the state can find them guilty at any time. This is what Alena Ledeneva calls “suspended punishment (PDF).”

What can we expect now? Shoigu has had a soft landing, becoming secretary of the Security Council. Other senior figures like Ivanov may yet get off lightly, while more junior figures will be punished in the arbitrary fashion of the Russian judiciary. Belousov may yet have some impact on defence industrial output—Russia's budget is focused on this objective—but he does not control the informal incentives within the defence system any more than his predecessor.


John Kennedy is a research leader in defence and security at RAND Europe. Elena Grossfeld was a 2023 summer associate at RAND who has also worked on specific projects with RAND Europe.

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