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Russian graft-buster's mission impossible
Published in The Saudi Gazette on 03 - 03 - 2012

Wounded in Afghanistan and an 18-year veteran of Russia's elite Alfa counter-terrorist forces, Sergei Vasilenko considers himself a patriot.
Which is why, when his bosses at the Federal Security Service — successor to the Soviet KGB — asked him in 2010 to investigate corruption, he jumped at the chance.
The problem, Vasilenko now says, was that his new chiefs at the Federal Tax Service didn't want him to do his job properly. Vasilenko's experience opens a window into what even Prime Minister Vladimir Putin, bidding for a third Kremlin term, calls Russia's “systemic” corruption. It's a malaise that Putin's political opponents say has flourished during the prime minister and former president's 12 years as Russia's most powerful leader.
Vasilenko says his probe, into suspected fraud involving tax officials in Moscow, met a wall of silence and he was soon out of a job. The Federal Tax Office said it had investigated Vasilenko's allegations but declined further comment.
Now the former soldier works with Analysis and Security, a local anti-corruption campaign group run by former tax officials, security professionals and managers of firms that have been on the wrong end of the kind of shakedowns the group seeks to expose.
“I fought, was wounded and decorated, and it has come to this?” Vasilenko said at Analysis and Security's cramped, unmarked office in a nondescript building on Moscow's Leningradsky Prospekt. “I want to make a difference.”
Senior Russian government officials admit that tax, customs and financial fraud cost the country tens of billions of dollars a year, much of which leaves Russia in the form of capital flight. Net capital outflows from Russia totalled $84 billion last year, the second-highest in the 20 years since the breakup of the Soviet Union and nearly 5 percent of gross domestic product.
The outflows show “investors believe that the Russian state has given up the fight against corruption,” said Sergei Guriev, rector of Moscow's New Economic School.
“The Russian state is not capable of solving problems — it is the problem itself.”
Guriev's comments, made to a recent financial conference at which Putin spoke, reflect growing dismay among Russia's educated, urban citizens that has fueled large-scale protests over alleged fraud in last December's parliamentary election.
Putin has promised a cleanup but protests continue, with slogans demanding the departure of the ruling clique of “crooks and thieves”. Analysis and Security doubts the demonstrations will achieve much and focuses instead on ‘outing' corrupt officials.
“We just keep hitting on the same spot until we get a result,” says Ruslan Milchenko, a former tax policeman who heads the group. For funding, it relies on firms it helps out of tight spots; it receives no foreign donations.
Russia has a reputation for authoritarian rule, but it is the country's liberal corporate law that makes it possible for one of the best-known swindles, the value-added tax (VAT) scam, to work.
Shell companies — known as odnodnevki, or “one-day” firms — can be quickly registered in Russia in the names of convicted criminals or using stolen passport data, corruption experts say. The companies take advantage of the fact Moscow alone has 50 tax offices. Russia has 89 regions — each with 30-50 inspectorates.
The shells file fraudulent claims for VAT rebates on goods and services that are never supplied, and turn the proceeds into cash by a range of laundering methods. They then re-register in another tax district to evade investigators.
Such one-day firms spirited an estimated $33 billion in ill-gotten gains out of Russia last year, with a similar sum illegally laundered inside the country, according to the findings of a government investigation presented last month by First Deputy Prime Minister Viktor Zubkov to President Dmitry Medvedev.
“This has a negative impact on the country's economic development, acts as a deterrent to investment and creates a serious threat to national security,” Zubkov said.
In his 2010 report to his superiors, a copy of which was seen by Reuters, Vasilenko wrote that officials in one Moscow tax office had used the scam to carry out “clearly criminal” schemes to cheat the state of at least $100 million. The tax office - the 28th inspectorate - had approved VAT rebates of at least 500 million roubles ($17 million) apiece to seven firms, six of which then switched their tax residency to Tver region.
Vasilenko reported that the companies that moved to Tver had no real business activity, only a handful of staff, and could provide no evidence that they had shipped any stock. The firms then merged and moved again, effectively disappearing.

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