[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




115th Congress }                            Printed for the use of the                       
                        
 1st Session   }     Commission on Security and Cooperation in Europe
======================================================================

	     KLEPTOCRATS OF THE KREMLIN:
	      TIES BETWEEN BUSINESS AND
	           POWER IN RUSSIA



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                  JULY 20, 2017
                  
                  
                  
                  Briefing of the
     Commission on Security and Cooperation in Europe     
------------------------------------------------------------------------
                  Washington : 2017




       Commission on Security and Cooperation in Europ
                  234 Ford House Office Building                                               
                   Washington, DC 20515
                      202-225-1901
                    [email protected]
                    http://www.csce.gov
                     @HelsinkiComm

                                      
                                      
                                      
            Legislative Branch Commissioners

              HOUSE				SENATE
CHRISTOPHER H. SMITH, New Jersey 	ROGER WICKER, Mississippi,
          Co-Chairman			  Chairman
ALCEE L. HASTINGS, Florida		BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama		JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas		CORY GARDNER, Colorado
STEVE COHEN, Tennessee			MARCO RUBIO, Florida
RICHARD HUDSON, North Carolina		JEANNE SHAHEEN, New Hampshire
RANDY HULTGREN, Illinois		THOM TILLIS, North Carolina
SHEILA JACKSON LEE, Texas		TOM UDALL, New Mexico
GWEN MOORE, Wisconsin			 SHELDON WHITEHOUSE, Rhode Island
                        
          
                 

               Executive Branch Commissioners
               
               
                    DEPARTMENT OF STATE
                   DEPARTMENT OF DEFENSE
                  DEPARTMENT OF COMMERCE
                            [II]




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              KLEPTOCRATS OF THE KREMLIN:
	      TIES BETWEEN BUSINESS AND
	           POWER IN RUSSIA



                    July 20, 2017


                                                                Page
                      PARTICIPANTS

    Paul Massaro, Policy Advisor, Commission on Security and 
Cooperation in Europe                                                 1

    Brian Whitmore, Senior Russia Analyst, Radio Free Europe          2

    Ilya Zaslavskiy, Research Expert, Free Russia Foundation          4

    Dr. Anders Aslund, Senior Fellow, Atlantic Council                7

    Marius Laurinavicius, Senior Analyst, Vilnius Institute for Policy 
Analysis                                                              9

    Ambassador David Fried, Distinguished Fellow, Atlantic Council   11


 
             KLEPTOCRATS OF THE KREMLIN:
	      TIES BETWEEN BUSINESS AND
	           POWER IN RUSSIA


                      ----------                              
                      
                      
                   JULY 20, 2017



    The briefing was held at 3:32 p.m. in room G11, Dirksen Senate 
Office Building, Washington, DC, Paul Massaro, Policy Advisor, 
Commission on Security and Cooperation in Europe, moderating.
    Panelists present: Paul Massaro, Policy Advisor, Commission on 
Security and Cooperation in Europe; Brian Whitmore, Senior Russia 
Analyst, Radio Free Europe; Ilya Zaslavskiy, Research Expert, Free 
Russia Foundation; Dr. Anders Aslund, Senior Fellow, Atlantic Council; 
Marius Laurinavicius, Senior Analyst, Vilnius Institute for Policy 
Analysis; and Ambassador David Fried, Distinguished Fellow, Atlantic 
Council.
    Mr. Massaro. All right, then, let's get started.
    Full house today. Good afternoon, ladies and gentlemen. Thank you 
all for coming today. Welcome to today's briefing on kleptocracy in 
Russia.
    My name is Paul Massaro, and I am the policy advisor responsible 
for economic and environmental issues at the Helsinki Commission.
    Combatting corruption is a core imperative of the Organization for 
Security and Cooperation in Europe, or the OSCE. Corruption takes many 
forms, but the one that concerns us today is kleptocracy, or rule by 
thieves. Nowhere is this idea of corruption as a system of government 
more fully realized than in the Russian Federation.
    Russia has been on a steady path to kleptocratic authoritarianism 
ever since Putin entered the scene 18 years ago. Since then a new 
generation has entered adulthood, one that does not remember a Russia 
before Putin. As these young Russian men and women enter the workforce, 
they confront institutions in both the public and private sectors that 
have been completely assimilated into Putin's kleptocratic 
architecture, and are left with a choice to either be co-opted into 
this corrupt system or ejected from it.
    While Putin is the central figure responsible for Russia's descent 
into kleptocratic rule, he is not the only one. The strongman of the 
Kremlin is surrounded by a loyal group of cronies who aid and abet the 
president, complicit in the robbery of the Russian people and the sad 
state of Russian democracy. Moreover, these cronies enable the Kremlin 
to export its brand of kleptocracy into neighboring countries, 
transforming corruption into a potent geostrategic weapon.
    Our briefing today will examine the dynamics of Putin's closest 
circle in order to establish who most strengthens and benefits from his 
rule. Additionally, briefers will analyze how these cronies advance 
Putin's goals and interests. We are grateful to have such distinguished 
panelists with us here today. I look forward to hearing your thoughts 
on this important issue.
    First, we have Brian Whitmore, who joins us all the way from 
Prague. Brian is a senior Russia analyst for Radio Free Europe / Radio 
Liberty [RFE/RL], and also writes The Power Vertical blog. Prior to 
joining RFE/RL in 2007, he worked for eight years for The Boston Globe, 
first in the Globe's Moscow Bureau and later as a Central and Eastern 
Europe correspondent based in Prague.
    Following Brian, we have Ilya Zaslavskiy--and, Ilya, I understand 
your wife just had a baby, so thank you so very much for being with us 
here today--[applause]--rather than at home; you know, we understand 
what a sacrifice you're making to talk about this very important 
topic--who joins us from the Free Russia Foundation, where he is a 
research expert--[laughs]--and Chatham House, where he is an academy 
associate. In addition, he heads Free Speech LLC, which runs a project 
on the export of corrosive practices from post-Soviet states to the 
West.
    We'll then hear from Dr. Anders Aslund, who the Helsinki Commission 
knows very, very well, who is a senior fellow at the Atlantic Council 
and a professor at Georgetown University. Anders is a leading 
specialist on economic policy in Russia, Ukraine, and Eastern Europe, 
and worked as an economic adviser to the president of the Ukraine from 
1994 to 1997.
    Following Anders, we have Marius Laurinavicius. [Laughter.] Help me 
out here. These Lithuanian names, man. [Laughter.]
    Mr. Laurinavicius. Laurinavicius.
    Mr. Massaro. OK, that--[Laughter]--who joins us from Vilnius, even 
further away than Prague. Marius is a senior analyst with the Vilnius 
Institute for Policy Analysis and a former fellow at the Hudson 
Institute. A highly regarded journalist from Lithuania, Marius has been 
reporting on Russian domestic and foreign policy for over two decades.
    And finally, we will hear from Ambassador Daniel Fried, 
distinguished fellow at the Atlantic Council. Ambassador Fried is one 
of the U.S. Government's foremost experts on Russia and the former 
Soviet sphere. His career with the Foreign Service has spanned over 
four decades in seven presidencies--wow--ending earlier this year when 
he retired from his post as the State Department's coordinator on 
sanctions policy. So, very relevant for this discussion.
    We will conclude with a Q&A session.
    I'd like now to give the floor to our first panelist, Brian 
Whitmore, who will provide us with an overview of the Russian 
kleptocratic political system. Brian, the floor is yours.
    Mr. Whitmore. Thank you. Thank you, Paul. Thank you for the 
invitation. It's a great honor to be here. I can't say how delighted I 
am that this issue is getting attention.
    Mr. Massaro. Oh, get the mic. There you go.
    Mr. Whitmore. There we go. That's better. Should I start again, or 
did everybody hear me? [Laughter.]
    I can't say how delighted I am that this issue is finally getting 
attention. We've been talking for the last few years a lot about the 
information war. I've attended more STRATCOM summits and STRATCOM 
dialogues and STRATCOM seminars than--well, I'm enjoying all of them, 
but I think--I've been harping on the issue that we need to broaden the 
aperture here a little bit, because information is just one of the 
things that the Kremlin has weaponized. And in my opinion, the most 
important thing they've weaponized is corruption.
    I'll start by saying I think it's a bit misleading to characterize 
Vladimir Putin's Russia as simply a kleptocracy, because this implies 
that the regime's primary aim is the enrichment of the elite, and I 
don't think this is the case. In Russia, corruption has been 
instrumentalized at home and it's been weaponized abroad.
    The domestic role of corruption is to control the elite and to 
maintain its loyalty. Members of the Russian political elite 
effectively have the license to seek rents, to monetize their 
positions, so long as they remain politically loyal and politically 
useful to the Putin regime. Only those who prove disloyal or unuseful 
are ever prosecuted for corruption.
    When there's a corruption case in Russia, the first question I 
always ask myself is not did he or she do what he or she is accused of 
doing, because of course they did. I say: Whom did they cross or whom 
did they cross politically? What happened? Why are they out on the outs 
politically? What happened here? That's always the first question to 
ask when a corruption case bubbles up in this regime.
    Internationally, corruption has been weaponized and used as a tool 
of statecraft. The Kremlin seeks to capture elites and establish 
networks of influence abroad by ensnaring officials in corrupt deals. 
I'm not going to get into the details here because we want to keep it 
really brief in the beginning, so I'm going to paint broad strokes and 
we'll go into details later.
    Moreover, the Russian state has both kleptocratic and ideological 
elements to it. This is what I call the two Russias. Sometimes 
kleptocratic Russia and ideological Russia do indeed work hand in 
glove. And by ideological Russia, I mean this project of Putin's to 
essentially make Russia great again, to bring Russia back up off of its 
knees and to restore it to what it believes to be its rightful place as 
a world power. Sometimes corruption and ideology go hand in hand, but 
at other times the two Russias are in tension with each other and 
operate at cross purposes.
    Closely related to the weaponization of corruption is the 
weaponization of Russian organized crime, which is also used as a tool 
of statecraft. But just as it is incorrect to classify Russia as simply 
an autocracy, it's also incorrect to classify it as a mafia state, as 
many Kremlin watchers do. More accurately, as my friend and colleague 
Mark Galeotti wrote in a recent report for the European Council on 
Foreign Relations, Russia is effectively a state with a nationalized 
mafia. The Russian security services cooperate closely with organized 
crime, often facilitating their activities. As a result, the security 
services are able to establish a so-called chernaya kassa, or black 
account, which has untraceable cash that can be used for all sorts of 
off-the-book operations, influence operations abroad. And I can go into 
a little bit more detail about this, but I'll keep my opening remarks 
brief.
    Organized crime groups are often pressed into service to perform 
tasks the Kremlin wants to keep its fingerprints off, such as smuggling 
weapons into the Donbas, assassinating troublesome dissidents in 
London, and so on and so forth.
    Weaponized corruption and organized crime are also part of a 
larger, non-kinetic arsenal that Putin's Kremlin is using to weaken 
Western institutions. Other elements of this include finance, 
information, energy, cyberspace, support for extremist political 
parties, and religion.
    If you want to think about the sources of Putin's conduct in this--
why is this regime behaving this way--and you look at Putin the man, I 
like to look at Putin as kind of a hybrid product. ``Hybrid'' is 
another one of the words of the past few years. I'm going to put it 
into a whole new context.
    Putin's a hybrid man. It's very stereotypical to look at Putin as a 
product of the KGB. And I think this is correct, but it's only part of 
the picture. If genealogically Putin is a product of the Lubyanka, of 
the KGB, sociologically he is a product of the wild 1990s, of the 
Darwinian criminal world that existed in cities like St. Petersburg, 
where he was deputy mayor and played an integral role as a liaison 
between the city authorities and the city's main organized crime groups 
in the 1990s. And I think this is something that's very important to 
understand.
    In conclusion, I'll say that one of my favorite talking points is 
the headline of a piece I passed out to the other panelists here, and 
that is that ``Corruption is the New Communism.'' The Kremlin's black 
cash is the new red menace, and it has to be looked at that way. 
Corruption as a tool of statecraft is something that is spreading from 
Moscow and is spreading as a tool of influence.
    I mean, if you think about this, communism, despite its faults--
and, of course, they were legion--did attempt to appeal to universal 
human ideals and aspirations, although in practice it often worked 
against these ideals. Corruption, on the other hand, appeals to the 
most universal and basest human instincts, that of greed. And sadly, 
it's often in sync with human nature, which makes the new red menace 
potentially more dangerous and insidious than the old one.
    Finally, I'll say corruption today is not just a matter of good 
governance anymore. It's not something we want to fight just because we 
want to be honest and good, although we do. Corruption is a national 
security issue of the highest order and needs to be treated as such.
    Thank you.
    Mr. Massaro. Well, thank you very much, Brian, for that fascinating 
overview, as well as these sorts of elaborations on how the regime 
exactly is structured--that it's not simply ruled by thieves, it has 
these ideological components to it. You know, I read your article 
``Corruption is the New Communism'' today, and just an incredible 
piece. I think that framing the issue in those terms is precisely the 
way that U.S. foreign policy needs to be approaching this topic.
    So, with that, I'll hand the floor to Ilya. Ilya?
    Mr. Zaslavskiy. Thank you, Paul, and thank you for coming.
    As Brian correctly said, finally this topic is out in the open, 
everyone is discussing it, and actually we quickly transferred from not 
discussing it to a term which I recently heard, ``outrage fatigue,'' 
with kleptocracy. Everyone understands the problem, but no one knows 
how to handle this unbelievable flow of information about kleptocracy 
and what to actually do with it.
    I've been studying this topic since at least 2011, being sort of a 
junior expert with other people and senior experts from Russia and 
Europe, warning about national security implications of corruption for 
the West coming from post-Soviet space. And even before aggression 
against Ukraine happened, I predicted in 2013 that especially Russian 
kleptocracy are taking their corrosive practices and corruption to 
Europe and U.S.--over at least 25 corrupt or corrosive channels, 
including lobbying, media acquisition, manipulation of information 
[provided to nations ?], influencing discourse at think tanks and 
universities, and so forth.
    In this briefing, I want to put forward a further warning and 
prediction. I think the West, especially the U.S. as leader of the 
democratic world, has been so negligent and appeasing of both Soviet 
corruption and subversion of democratic values and institutions under 
Putin over the last 18 years that even on the best-case scenario 
Russian kleptocracy will not be eradicated in the foreseeable future. 
The best the West can hope right now, from now on, is to try to attempt 
to contain negative global impact of rampant kleptocracy coming 
especially from post-Soviet space, and try preserving its own 
democratic institutions and values. So, in a nutshell, this problem is 
really no longer just about Russia or post-Soviet, it's really about 
the U.S and the West.
    In my research paper that is slated to come out at the Kleptocracy 
Initiative of Hudson Institute in the next month, called--we call it 
``Neo-Gulag Values and Their Influence in the West,'' sort of the 
working title--I really want to emphasize the influence of non-state 
actors, or supposed non-state actors coming from post-Soviet space. The 
biggest difference with the Soviet Union is that not only is there this 
seeming sort of business interactions between supposedly private sector 
in post-Soviet space and in the West, but the nature of transactions 
has changed considerably. And there is little understanding, in my 
view, in the West, despite ample evidence that really from Soviet times 
we now see a fusion of three different worlds and values coming from 
post-Soviet space in one elite.
    So, in Soviet times, we used to have three different worlds: 
Communist Party, KGB and different security services and law 
enforcement, and actual organized crime. They were actually quite 
antagonistic and conflicting with each other, especially at some 
important points. But now I would argue that current political elite, 
especially in Russia but also in surrounding post-Soviet states like 
Kazakhstan and Azerbaijan, they took the worst but most practical 
values and business practices from each of the three worlds and 
amalgamated them into one sort of comprehensive ideology and tactic.
    And my friend Karen Dawisha, with her book ``Putin's Kleptocracy,'' 
my friend investigative journalist Anastasia Kirilenko, they've been 
showing that especially in St. Petersburg in 1990s, Putin has already 
tested all these three worlds and practices from those three worlds, 
and he came to power with a team which has been experienced and used 
networks from all those three worlds.
    I think one of the important conclusions of that study and other 
studies that we do in Free Russia Foundation is that there are no 
systemic or any kind of liberals in Russian Government. It's a big 
myth, which is still somehow spread in Europe, especially in countries 
like Finland or Germany that still cooperate with Russia on many 
business levels. So people like Herman Gref, Anatoly Chubais, or Alexei 
Kudrin have been implicated in those years under Putin even in St. 
Petersburg, or together with Putin.
    I would argue--I mean, recently I highly recommend the study that 
just came at London's RUSI, and it's emblematic that military and 
security think tanks raise this question--that shows that Russian-style 
corporate raiding is one of the most widespread mechanisms of operation 
of especially big businesses in Russia. Starting from the case of 
corporate raiding of Yukos, this became a common feature of today's 
Russia, and Kremlin doesn't want to implement any consistent measures 
to protect businesses.
    Previously, last year, in the report for Free Russia Foundation and 
Martens Centre in Brussels called ``The Tsar and His Business Serfs,'' 
I also argue that the term ``oligarch'' is no longer meaningful, 
really. In fact, it is a commonly widespread but hugely dangerous 
mistake in the West to believe that some sort of private businessmen 
and market economy exist in Russia. They don't. The legal system itself 
has been hijacked by institutionalized criminal groups, as you said, 
and security services. And business in Russia really means state 
favors, tax breaks, contracts from Kremlin, and these ``oligarchs'' are 
really now cash handlers of cash flows that are allowed by Putin. And 
also, Kremlin has special compromising material or other leverage over 
their lives. Even if these previously conceited oligarchs, they live in 
the West and appear to be Western businessmen and have looks and 
lifestyle and lobbyists and lawyer like Western businessmen, they are 
actually Putin's handlers because their base is in Russia, really. But 
they want to spend money and sort of enjoy best of two worlds.
    This brings me to my second major point in presentation. 
Kleptocracy in Russia is no longer a case of some distant phenomenon 
with a residual impact on the U.S. Without any exaggeration, I believe 
there are strong indicators that we are passing through the times when, 
as in 1930s, the very existence of liberal Western capitalism with 
ideals of accountability and good governance are in jeopardy due to the 
rise of crony or kleptocratic capitalism in post-Soviet space, China, 
and other developing world. I call this phenomenon G-13 versus G-7 in 
G-20. In fact, G-7 itself could be not seen as that much about Western 
liberalism. I mean, if you look at countries like Italy, et cetera.
    We see that most developing countries seem to be learning worst 
kleptocratic government and business practices, and capitalism based on 
the rule of law and proper separation of powers is no longer an ideal 
for more societies where people have adapted to sophisticated and often 
seemingly comfortable and acceptable forms of state-level corruption. 
So corruption is a new accepted norm on many, many levels in societies, 
both in the West and in post-Soviet space and elsewhere.
    Together with Free Russia Foundation and a group of 2,000 activists 
around the world, we are preparing the launch of a research project 
called ``Underminers,'' which you mentioned in my introduction. And I 
think this is a new term that we believe is more relevant than 
oligarchs and other non-state actors. It basically shows that we have a 
whole group of people and actors--non-state actors, but connected with 
kleptocratic regimes, who actively undermine democracy in the West 
while enjoying illicit profits in Russia and spending them in the West. 
I believe these individuals and corporations learnt even more 
sophisticated financial disinformation and high-tech methods to advance 
their own interests, and there are multiple examples which I want to go 
into Q&A session.
    What can we do--and if I can have one minute to discuss this--with 
this outrage fatigue? I think we need a new system of containment 
against Russian and other post-Soviet kleptocracy that will enforce 
strictly existing laws, will create more up-to-date laws that deal with 
today's complex transnational corruption and subversion, especially in 
regard to anonymous companies and offshore jurisdictions, something 
which Kleptocracy Initiative of the Hudson Institute is doing well and 
many other anti-corruption groups are now discussing in Washington 
especially. I also think we need to build awareness among Western 
general public that will create this understanding/acknowledgement in 
the minds of people about the link between transnational kleptocracy 
and the erosion of democracy in the West.
    So far, I've seen very few actual examples of that. People in 
London now finally realize that they can't actually live in their own 
city, especially students and old people, because all these kleptocrats 
from around the world are raising real estate prices. But we need more 
examples like this.
    And I will finish my presentation with a warning that the price we 
pay today in the West to stop kleptocracy is considerable, and we have 
to understand that there will be a price. We need to--especially in the 
business sector--we need to do containment. We need to really prevent 
some of the cash flows, especially, but also many, many other different 
levels of subversion and corruption. But this price is still much 
smaller than the one that we are likely to be forced to pay tomorrow or 
the day after tomorrow.
    Mr. Massaro. Well, thank you very much, Ilya. I think your comment 
that ``oligarch'' is no longer meaningful is an extremely important 
point to hit home, especially given that Stephen Colbert recently went 
to Russia and did his little piece on a day with an oligarch. Well, 
these oligarchs, they aren't really oligarchs anymore. They're cronies 
of Putin, that's what they are. You know, it's certainly not like it 
was, and to a point still is in Ukraine, where the oligarchs have a 
competitive political environment. These guys aren't competing with one 
another, they're just working for Putin.
    I'd also like to back up your comments on the work of the 
Kleptocracy Initiative. Give a shout out to Charles Davidson--I see you 
hiding there in the audience--who's joining us today. He was a panelist 
at a briefing we did last month, two months ago on asset recovery, and 
he talked a lot about the corruption services industry in the West, 
where lawyers and bankers are ready and willing and advertise to take 
these funds and hide them in the West. So as far as you say so 
negligent and appeasing, yes, very much so in the West.
    With that, I'll hand it over to Dr. Aslund.
    Dr. Aslund. Thank you very much, Paul and the Helsinki Commission, 
for this invitation.
    And indeed, I think that Russia's kleptocracy is a very important 
topic. When I worked as an economic adviser to the Russian Government 
in the early 1990s, then my perception of corruption was like this: a 
pyramid, little at the top and a lot at the bottom. Then, it changed 
like this. The pyramid was inversed: a lot of corruption at the top, 
little at the bottom. Russian administration works much better now than 
it used to--much fewer, small bribes--but now it looks like this. It 
has become an atomic mushroom, with all the corruption at the top.
    And I think that there have been two important things said here: 
organized crime and oligarchy are over. They have been assumed by the 
state, and in addition here is to a considerable extent, they have been 
legalized. President Putin is a lawyer, and he thinks about legalizing 
many of the things that he's doing. The smaller matter of how the 
system functions, then whether it's legal or not--I've written several 
books about Russia's and former--the Soviet Union's economic reforms. 
Right now, I'm at the final part of a new book with a working title 
``Russia's Crony Capitalism,'' and the main idea is very much that 
Putin has successfully integrated enrichment of the elite in his 
economic system.
    And I will say that I see the Russian economic system today and 
power system as four different circles. The first circle, that is state 
power, FSB, and judicial power. There are no independent courts in 
Russia, therefore, there are no real property rights. Property rights 
is something that you have abroad, not in Russia. But since you have it 
abroad, why bother about getting it in Russia? Because it just stops 
your enrichment.
    The second part is the state corporations. Russia's state sector 12 
years ago, according to official Russian statistics, generated 35 
percent of GDP. Today, it is 70 percent of GDP. The big state companies 
are buying up the companies from the former oligarchs quickly at half 
the price because the former oligarchs are no longer allowed to sell to 
one another or to foreigners. They have to sell to Putin's close 
friends or to state companies, and then the prices are at most half of 
what they should be. Therefore, we can see that the prices of Russia's 
stock exchange are extremely low. If you take the most outstanding 
state corporate company, Gazprom, it was worth, at the peak, on the 
London Stock Exchange, $369 billion. Today they have wasted $320 
billion. It's down to $50 billion. And this is an extreme example, but 
it's not untypical.
    And in 2007, Putin did something quite extraordinary. He 
transformed six big state companies with one law from each of them to 
state corporations which are called nongovernmental organizations, so 
effectively privatized assets of more than $1 billion of value. And 
then you wonder who controls these nongovernmental organizations, or 
nekommercheskie organizatsii, as the Russian terms run? Well, of 
course, it's Putin who controls it all.
    And at the third circle, that is the cronies. Four of them have 
been sanctioned by the U.S. Government: Gennady Timchenko, Arkady and 
Boris Rotenberg, and Yury Kovalchuk. This is the real Putin circle. 
These are not KGB people, and they don't work in state companies. They 
are Putin's real friends, whom the U.S. Government assumes also holds a 
part of Putin's wealth.
    Look, analyzing this, you wonder, how do they make the money? 
Essentially two ways. Asset stripping, mainly from Gazprom--that is, 
they buy assets--for example, financial companies and television 
companies for Gazprom cheaply--and the other is that they get big state 
procurement orders at massively inflated prices. And there's no 
competition because these are Putin's friends. Everybody knows what 
they should be given it.
    Looking at the numbers, I come to the assessment that 10 [billion 
dollars] to $20 billion a year has been taken out by this group of 
essentially half a dozen people each year since 2006. So if you add it 
up, we have, only in this way, 100 [billion dollars] to $200 billion 
that has been taken out by this small group of people. Of course, a 
consequence of this is there's not much corrupt revenues left for the 
others. So corruption in Russia today, if we call it like that--
because, really, it's quite legalized--they have got these state 
procurements legally. It's very concentrated.
    But what I will shock you with is the fourth circle. Ilya touched 
up on it, but that is the West. This would not happen in the way it 
does without the West. After this money goes through Cyprus--but Cyprus 
is only a channel--and then it goes normally to some Caribbean Island. 
British Virgin Islands is typical for this. But when it goes to two 
places--London and New York--or the U.S. more broadly--it goes through 
anonymous companies, LLCs that are usually in Delaware. They can also 
be in Nevada, Wyoming, and South Dakota. This should not happen, but it 
does.
    And the other problem is that the money passes not through the bank 
system--which is properly regulated--but through law firms; fine, well-
renowned law firms which consider this to be attorney-client privilege. 
And in this way, the Wall Street Journal had an article on the 26th of 
December last year where they assess that at least $40 billion a year 
goes into this country in this fashion. These are the two things that I 
suggest that we should focus on stopping. There should be no anonymous 
companies whose beneficiary owners are not known and there should be 
absolutely not any accepted transfers of money through law firms that 
bypasses the bank system. These are the two suggestions I have that the 
United States Congress should really do something about.
    Thank you.
    Mr. Massaro. Well, thank you very much for that comprehensive 
analysis, Dr. Aslund. You've been such a wealth of knowledge for the 
Commission for so long. Thanks once again for running us through such 
an important thing.
    Now to reiterate your circles, one is state power, FSB; two is 
state corporations; three are the cronies and friends of Putin; and 
then, finally, four is us. A lot to digest.
    Marius, the floor is yours.
    Mr. Laurinavicius. Thank you, Paul.
    I'd like to thank the organizers for having me here, and I would 
like to give a credit to two other institutions, first of all to 
Kleptocracy Initiative I already mentioned. I worked for them for a 
year and wrote a report for them on weaponizing the kleptocracy, how 
Putin weaponizes kleptocracy. And I really believe these guys at the 
Kleptocracy Initiative--not to offend anyone else, but they are the 
best in terms of expertise and determination to work on the issue.
    The other institution I would like to mention is the institution 
I'm affiliated with right now, Vilnius Institute for Policy Analysis. 
They sponsored my trip here to D.C., and because of them I am talking 
and sharing my expertise with you today.
    I really think that we in the region, in the Baltic region, in the 
Eastern Europe, we have something to share with you because almost 
everything you are experiencing here in United States or in the Western 
Europe we have experienced already. I mean, everything--information 
war, kleptocracy, kleptocratic influence, economic influence, you name 
it. Everything we have experienced already. So I will try to speak 
today about this particular experience, because I believe you will find 
some parallels with the processes in the West yourself.
    First of all, I would like to say that I was asked to talk about 
kleptocracy as a tool of foreign policy of Russian regime. I should say 
it's not a tool of foreign policy, it's a weapon. Putin--it's not only 
Putin. It's not just about Putin. It's about the system. But Putin's 
regime weaponizes kleptocracy, and it's not only about foreign policy. 
It's not only about certain goals of foreign policy.
    The second thing is that--and it was already mentioned--we're 
dealing with not--I should say not a normal state or even not a normal 
authoritarian state. We're dealing with a mafia state, and that makes a 
difference. So they're rejecting all kinds of influence which is not 
usual to normal state influence, and kleptocracy is one of them.
    So, talking about our experience, Ilya said that he started to be 
interested in the topic of kleptocracy in 2013. I should say I started 
to be interested and work on this in 2003. [Laughter.] And it was 
because--I don't know how many of you know, but we in Lithuania, we 
have the worst--the first president--the first impeached president in 
Europe in the whole history of Europe. So it was 2003 when the scandal 
broke in Lithuania about the ties of our president to Russian business 
and even criminals, and that was real eye opening for me, myself. I've 
been working on Russia since 1991, so it's already 26 years, and it was 
really eye opening because we found that the influence can be projected 
by these relations, which at that time were considered just normal 
business; by the relations to the criminals, because on the list of the 
people who were related to people around our president were people like 
Kikalishvili, who was on the U.S. list--well, not sanctions list, but 
he was on the FBI list.
    So I started to work on that. And later I looked back to the 
history, and I should say that this crony capitalism or kleptocracy in 
Russia--it started not in the year 2000, when Putin came to power, it 
started at least in 1991. Or I would say it started even earlier, when 
Communist Party and KGB made plans to transfer money--huge amounts of 
money; there are different calculations, but at least 50 billion 
dollars were transferred to the West, and up to 100 billions of 
dollars. So, since that, they are projecting the influence over the 
West using this money, and using this influence and networks of 
influence.
    The other example I would like to give you is from our neighboring 
country, Latvia. Now we have a coalition in Latvia which is led by the 
party of the mayor of Ventspils. The name of the guy is Lembergs. And 
what is interesting about him--he is definitely not called or named 
pro-Russian or a Russian agent, but what is interesting about him, he 
started his business in 1991 with the guy who was already mentioned, 
Timchenko.
    And why they are doing this? They try to--not just to achieve some 
foreign policy goals, they try to capture, as it was said by Brian, 
elites of the countries. They try to capture institutions. And the 
ultimate goal is, if it's possible, to capture the entire state.
    So, first of all, they captured, of course, not only by having 
these relations with the mayor of Ventspils, Lembergs, but via the 
other peoples, they captured the port of Ventspils. And now they have, 
looking--again, looking back to history, I can say that they projected 
the Russian influence through several governments of Latvia which were 
not called pro-Russian. The others, prime ministers of Latvia like 
Skele or Slesers, they have clear business relations with Russia and 
always were, well, at least semi-pro-Russian.
    But the thing is that, when we don't--we don't call Mr.--let's say 
Mr. Lembergs as a pro-Russian, we should remember that he was the guy 
who publicly called Russian troops in Latvia as occupational ones. And 
the thing is that no one cares about that and no one looks into the 
history of his business.
    The same thing, I should say, about our--well, even U.S. attitude 
in 2003, because it was a really weird situation when we were talking--
in Lithuania, we were talking about Russian influence over Lithuania. 
And staunchest supporter of Mr. Paksas, the impeached president, at 
that time was the U.S. ambassador in Vilnius. Every day or every second 
day he went publicly to defend our president, saying that he's a normal 
guy, pro-Western, and it's just about politics not about Russian 
influence. And working on the Kleptocracy Initiative, I put several 
documents at the kleptocracy archives on the issue, so you can find 
them yourself.
    But, to make it to the end, I should say that we should look at the 
issue having in mind the quotation of the famous Spanish prosecutor 
Jose Grinda. I don't remember the exact quotation, but he said about 
the network of criminals working for Russian regime--he said when 
Russian state can't for one reason or another achieve something by the 
means of the state, they employ criminals. So, in the same manner, they 
employ kleptocracy to achieve some goals the state can't achieve 
itself.
    Thank you.
    Mr. Massaro. Absolutely. And thank you, Marius, especially for that 
in-depth look at the perspective of how far back this all goes. I mean, 
I think that is the most surprising thing, is starting in 1991 and now, 
in 2017, we're finally taking an in-depth look at it.
    Finally, we have Ambassador Daniel Fried, who's going to talk a 
little bit about what the United States might be able to do about this.
    Amb. Fried. Thank you.
    My point of departure is to assume that the previous speakers are 
correct about the nature of Russian kleptocracy and its weaponization 
at the hands of the Putin regime. I make this assumption because I 
agree with it, but I need not go over the ground that has been covered.
    What, then, do we do? First of all, as was the case during the Cold 
War, nothing will work if we lose the political and, may I say, 
ideological struggle. We need to have faith in our own democratic 
system, in ourselves, in the free world. And when we do that, we have a 
foundation from which to proceed.
    I say this because now that very foundation is also under attack, 
both from without--from the Russians--but principally from within, from 
people not necessarily at all connected with Russia. So this is a 
different kind of a struggle. It's not my purpose to go into that, but 
I want to mention it.
    Secondly, a U.S. policy designed to push back against Russian 
kleptocracy and corruption needs to be integrated in a complete Russia 
policy. There is nothing incompatible between pushing back on Russian 
aggression in various forms and seeking those areas of common grounds 
where it may be possible. I wouldn't be too hopeful about the positive 
agenda, but you don't rule it out.
    Another point is that this is not--as Mr. Laurinavicius pointed 
out--the Americans may have discovered this recently, but this has been 
a problem well before we discovered this on the front pages of our 
newspapers. The Europeans have been dealing with this for a long time, 
and the Baltic states and Poland have--Bulgaria--have been dealing with 
it since 1991, essentially. So the answer should not be made in the 
U.S.; it's got to be coordinated with Europe in particular, and within 
the G-7, all right?
    That said, what are our options? The first is exposure. We should 
not let the corruption take place in the shadows, in the darkness. And 
this is a job principally for nongovernmental organizations--for 
journalists, for the 21st-century cadre of investigative journalists, 
and that sort of means tech-savvy younger people who are adept at 
exposing malign influence. They're all over, including in Russia 
itself. We need to expose what the Russians are doing, the better to 
anathematize it. Just as it was not popular in the United States to be 
associated with the Soviet Union as their agent or as their useful 
idiot, there should be a price to be paid for doing the Kremlin's work 
for it.
    Third--and this is more in the area of government--there is 
pressure. There are both sanctions and there are enforcement of 
financial regulations. Treasury's FinCEN, the Financial Crimes 
Enforcement Network, is not a sanctions organization, but it goes after 
financial crimes. They're very good. They need to be--their expertise 
and their resources can be useful in exposing what the Russians are 
doing.
    Fourth--and this requires some discussion--but Russian investment 
is often, let us say, strategic. They want to buy up key elements of a 
country's infrastructure using cutouts--Cypriot money, false fronts. In 
the United States, there is a Committee on Foreign Investment which 
screens it for national security purposes, so-called CFIUS. It works. 
It may be that European countries should study that and learn from the 
example. I understand a body like that can be a hindrance and a 
bureaucracy to legitimate foreign investment, but when you're dealing 
with money that isn't what it claims to be, governments may want to 
provide themselves with protection.
    Now, sanctions may have a place here. My last job in government was 
the State Department's sanctions coordinator. I don't want to 
overestimate or oversell the ability of sanctions to solve the problem. 
Still, it is a useful tool.
    The Magnitsky Act was not designed to go after corrupt officials. 
It was designed to go after major human rights abusers. But it turns 
out we know from the Panama Papers that the corruption that Sergei 
Magnitsky, the Russian lawyer who was basically murdered because he had 
uncovered corruption, had uncovered a lot more than we even realized at 
first. See the Panama Papers, the Prevezon case. When you pull on a 
Russian thread, you never know what comes out the other end.
    The Magnitsky Act seems to bother the Russians, so much so that 
they want to talk with--about adoptions with just about anybody, 
adoptions being the euphemism for the deal it would take to roll back 
the Magnitsky Act, because the Russians imposed a ban on adoptions--
American adoptions of Russian children as retaliation. So when you hear 
someone's talking adoptions with the Russians, what it really means is 
they're talking about getting rid of Magnitsky. The Magnitsky Act was 
not designed to deal with this problem, but it stumbled into it because 
threads in Russia tend to lead to one another.
    The Global Magnitsky Act, Senator Cardin's creation in a way, does 
explicitly deal with corruption. It is a legislative vehicle, now a 
law, which allows for us to go after corrupt Russian officials. In my 
experience, it is hard to demonstrate this. But that means you go to 
work, including with nongovernment sources of information, this army of 
investigative bloggers and tech-savvy people I mentioned earlier.
    The Ukrainian sanctions went after--as Anders said, went after 
Putin's cronies by design. We were not intending to make things 
pleasant for the Kremlin after it had invaded one of its neighbors for 
the second time in 10 years.
    The Senate bill, which passed 98-2, which is now being taken up in 
the House--the Senate bill on Russia sanctions includes among its many 
provisions two sub-provisions dealing with corruption, one on 
privatization, allowing the administration to go after individuals who 
unjustly benefit from privatization--again, maybe hard to demonstrate, 
but it is a useful vehicle--and more generally corruption, similar to 
the Global Magnitsky Act. Sanctions are not going to solve the problem, 
but they are a useful tool.
    I mentioned the various threads that come together. All of the 
tools I mentioned are useful to the degree that we Americans and the 
Europeans and the G-7 take seriously the challenge of an autocratic 
Russia which wants to export its corruption and seems to be aiming to 
make the world safe for Russian autocracy--that is, by weakening 
democratic institutions and weakening the idea of democracy. And lest 
you think that's an original thought on my part, it's actually about a 
200-year-old Russian policy, from the time of Nicholas the First. No 
need to remind a Lithuanian about Tsar Nicholas, who used his army to 
crush every liberal revolution it could reach, the better to keep out 
the infectious ideas of the Enlightenment.
    I do not believe that Russia is doomed to live forever its worst 
history. I don't accept the notion of a civilizational divide. In 
Russian history, Russia does, when it fails at external aggression, 
turn to internal reform, and has sometimes been successful. And the 
period of Russian history we think of as the most successful, the 
period that gave us world-class literature and art and music, and a 
rapidly developing economy, and the beginning of a more modern economic 
system, came as a result of the failure of its aggression and failure 
in various wars--Crimean War, Russo-Japanese War. I mention this 
because it is important to remember what it is we are trying to 
achieve. We are not trying to achieve a weakening of Russia. We are 
trying to achieve a defeat of Putinist Russia, the better to have a 
better relationship with that better Russia. That's my view; Lithuania, 
being a neighbor of Russia, may have a more jaundiced view of Russian 
history.
    Mr. Laurinavicius. I couldn't agree more.
    Amb. Fried. OK, good. [Laughter.]
    But remember, the current era reminds me more than any other period 
of the early 1980s, when Russia was hostile to the West, everyone in 
Europe was worried about the outbreak of war, and Russians were 
beginning to whisper to Americans in the Soviet Union--I was one of 
them--things cannot go on like this. The Reagan Administration's 
approach to Russia had two periods: pressure before Gorbachev; and when 
the Russians turned inward, having failed to intimidate the West, 
Reagan abandoned his more rigid cohort and reached out to Gorbachev. 
And it may be that one of these years a Russian attempt at internal 
reform will, in fact, succeed.
    So rather than end on a note of toughness and hitting back at the 
Russians, I wanted to talk about at least the potential of a better 
future. That time will come, though it's not today.
    Mr. Massaro. Well, thank you very much, Ambassador Fried. You know, 
great talk. Let me add, for the much deeper perspective, going back to 
the 1980s but also going back 200 years--[laughs]--and also, 
conversely, for the shout out to the role of young people in getting 
this done, both tech-savvy and politically engaged, because I know 
there are a lot of politically engaged young people in this room.
    And that leads to my first question. We'll now enter the question-
and-answer phase. And this one is for Ilya. In March and June, major 
protests against corruption broke out, led by Alexei Navalny, leading 
to crackdowns and imprisonments. Does this signify cracks in the 
foundation of Putin's kleptocracy, or is this a flash in the pan? And 
what more can be done to provide assistance to those Russians who want 
to see a democratic, human rights-respecting Russia in the future?
    Mr. Zaslavskiy. It's a good question that all Russians ask 
themselves, and they're divided now, as Russian opposition's often 
divided on many issues. This is the newest one.
    I would say it's definitely a hopeful sign that this new generation 
of senior students from school and students from universities are 
really fed up, with no prospects in life and no social mobility and 
out--rampant corruption that they face and a huge brain drain and 
immigration out of Russia as the only option to really succeed.
    The question is how sustained these protests can be and how much 
resistance these young people can provide, because one thing that is 
not realized in the West, I think, enough is that Russia since Soviet 
times has really traumatic experience of state oppression and Stalinist 
repressions. And that's why I call--in my report I call this neo-gulag 
values, because gulag is really a system of prisons and repression, and 
Russia's--it's a defining feature of Russian culture and political 
culture as well. And it's nothing cowardly to say that people fear 
repression, and there is a limit to how much people can withstand. Many 
of us in this room, including myself, have had to leave Russia because 
we faced unprecedented dangers to our lives.
    I would say the good way to support is, firstly, for the West to 
uphold its own values but also to engage in what I would call filtered 
containment. So definitely keep people-to-people contacts and programs. 
I myself in 1990 participated in a program called FREEDOM Support Act, 
sponsored by Senator Bradley in the U.S. Congress, and I saw thousands 
of students from post-Soviet countries coming to the U.S., learning and 
then becoming long-term advocates of democracy in their own countries, 
even if they couldn't really enforce their views in political life.
    So it's a long-term game. I would say--I agree with Ambassador 
Fried that one day this regime will collapse, and it's inevitable. But 
the question is how--it may take a decade or 15 years or lifetime of 
these kleptocrats that are currently in power. It's a long game, which 
requires a multilayered approach.
    Mr. Massaro. Thanks very much, Ilya. Dr. Aslund?
    Dr. Aslund. Yes, three comments about Navalny and the protest. The 
first is that he's focusing on one theme--I think this is very wise--
the top theme, corruption. It's not about what kind of reforms that 
should be done afterwards. I think this is very wise. This is what you 
do when you want a democratic breakthrough.
    The second is that learning from the protests 2011, 2012 that were 
very concentrated in Moscow and did not excite the rest of Russia--and 
Navalny is now trying to engage 200 different cities around Russia, the 
whole country, and as Ilya said, he's focusing on the young.
    And the third is quite interesting. He's criticizing one specific 
person after the other, but not Putin. Boris Nemtsov went after Putin, 
and we know what happened to him.
    Thank you.
    Mr. Massaro. Well, thank you very much. Given that we are coming up 
to our time constraints here, let's have a whole half hour for audience 
questions. I'll refrain from asking a second question.
    Audience, please. Hands. Over there.
    Questioner. All right. Thank you. My question is to the ambassador. 
You mentioned that Russia in times of failure has turned to internal 
reform. What would that look like in the Putin administration?
    Amb. Fried. Well, I don't know what it would look like in the Putin 
administration, but--a Russia reform package would have to involve 
getting rid of the kleptocracy, opening up the economy, the rule of law 
at home, and all supported by a better relationship with the West.
    The Russian economic reformers, such as they are, make the case 
that it is precisely Russia's hostile relationship with the West and 
the failure of the rule of law at home which keep the economy backward 
and dependent on the export of raw materials.
    So you would have a series of liberalizing reforms at home and an 
anticorruption campaign. That is a little bit hard to imagine under the 
current leadership, only because President Putin has a bit of the King 
Lear problem: You can't go into retirement after you've done the things 
you've done to stay king. [Laughter.]
    But you know, Anders Aslund is the person who knows the state of 
Russian economic reform thinking and can do a better job answering sort 
of the content of what a reform package would look like.
    Mr. Massaro. Dr. Aslund?
    Dr. Aslund. Well, I would rather say that first you need to get rid 
of the regime. You can't change anything where the people are all 
dependent on a corrupt system. You have to change the people, the 
leadership. That's the only way.
    And in order to do that, you need democratic elections, early 
democratic elections of both president and the parliament and then 
lower down after that. The economic reform we know how to do. That's 
not a big problem.
    Mr. Massaro. Additional questions? Right there. Right next to you, 
Katya.
    Questioner. I wanted to call attention to the best and the worst of 
Russia. One, to stress the best, today is Lyudmila Alexeyeva's 90th 
birthday. For those who don't know her name, she's the longstanding 
chairwoman of the Moscow Helsinki Group and usually referred to as the 
doyenne of the Russian and, before that, the Soviet human rights 
movement.
    I wanted to ask a question to--perhaps to Anders about something--a 
rumor I've heard for many years, which is that Putin is probably the 
richest man in the world. For many years I heard that he's worth 70 
billion [dollars]. Now I've heard an updated figure of 120 billion 
[dollars].
    You pointed out why people inside Russia unfortunately don't seem 
to be able to afford, literally or figuratively, to refer to that fact, 
if it is a fact, but I wanted to get your reaction to that.
    Thank you.
    Mr. Massaro. Before Dr. Aslund speaks, do you mind giving your name 
and organization? I know who you are, but if----
    Questioner. Well, the previous speaker didn't, so I didn't either.
    Mr. Massaro. Right. Yes, sorry, that was my fault. I should have 
brought that up.
    Questioner. Cathy Cosman. I'm recently retired from the U.S. 
Commission on International Religious Freedom.
    Mr. Massaro. All right. Great.
    And if all audience members could do that, that'd be great. Thanks.
    Dr. Aslund?
    Dr. Aslund. The simple answer is that we don't know. I think that 
something in the order of $100 billion would be reasonable.
    As I suggested, the Putin group takes out $10 [billion] to $20 
billion of Russia each year. What we know from Sergei Kolesnikov, who 
was a minor partner in one of the branches of a Putin scheme--he was 
involved in 32 offshore companies, and he fled the country, 2011, 
afraid of losing his life--what he said was that normally Putin owns 
about one-third in each company and that he really owns it directly.
    So if you take $200 billion and give him one-third, that would--
something like $70 billion in that chunk would make sense. But we can't 
know. We have no idea how many anonymous companies there are in the 
country.
    In Britain Prime Minister David Cameron said a bit more than a year 
ago that there were 99,000 buildings in Britain that were owned by 
anonymous companies. And these are normally buildings that cost several 
million dollars each. So this is a lot of money.
    Mr. Massaro. Marius?
    Mr. Laurinavicius. I have some things to add to that.
    To my mind, it's a bit misleading to focus just on Putin, because 
we are usually doing this mistake in the West that it's about Putin, 
it's Putin's regime, it's about Putin's wealth, it's about Putin's 
cronies.
    I would say it's much more about the system itself. And the system 
is based on KGB. It's still based on KGB. It's not just--well, of 
course it's a hybrid system. It's not just KGB, but it's based on KGB.
    And looking to the history, even in years of 1990s, early 1990s, 
somebody already mentioned that when this, well, symbiosis of KGB and 
mafia took place, I should say that looking even back to the history, 
we should say that all these Vory v Zakone chiefs--``thieves-in-law''--
were controlled by KGB in the Soviet times.
    So it's the really based on the KGB, and the KGB managed from the--
as I said, we should look at the year of 1991, 1990--what they did at 
that time. And they managed to come back to power in just 10 years.
    Even answering the previous question, to break the regime, we need 
to do something with all the system, not just Putin or his cronies.
    Mr. Massaro. Thank you.
    Additional questions? Right here.
    Questioner. Hello. My name is Ellen, and I'm an intern for Senator 
Gillibrand.
     I think my question is directed to Dr. Aslund and Mr. Whitmore. 
I'm just wondering if you guys could discuss more about how 
kleptocracies, specifically with business ties and the transfer of 
money, can lead to the undermining of democracy.
    Mr. Massaro. I guess we'll start with Brian here, and you'll be up 
next.
    Mr. Whitmore. I can give you an example. Back in 2010 I was 
researching an article I ultimately coauthored that was published in 
The New Republic, called ``The Velvet Surrender.'' And it was looking 
at Russian influence in the Czech Republic in networks of influence. 
And I came across this company called Vemex. It was an energy trading 
company with a mindbogglingly opaque ownership structure that 
ultimately led to Gazprom. This company, Vemex, had bought up 10 to 12 
percent of the Czech energy market, and those with ties to it were, 
unsurprisingly, supportive of the Kremlin line.
    Vemex is--oh, let me get--I actually broke this down, because it's 
pretty complicated. Vemex is owned by companies based in Switzerland, 
Germany and Austria, one of which is Centrex Europe in Energy and Gas, 
which is founded by Gazprom's financing arm and registered in Austria 
and, according to the European Commission, is owned by two companies, 
one registered in Cyprus and the other controlled by Gazprom's German 
subsidiary.
    Are you confused? Good. That's the point. [Laughs.]
    My late colleague Roman Kupchinsky, the former director of RFE/RL's 
Ukrainian service, testified before the Senate Foreign Relations 
Committee back in 2008 that Centrex was just one of these companies. 
Gazprom, with the silent support of the Kremlin, has set up 50 or 
middlemen companies like this throughout Europe.
    Now why is this undermining democracy, to get to your question? 
Every one of these creates a network of influence that is undermining 
the rule of law in every one of these countries. I called my article 
about the Czech Republic ``The Velvet Surrender'' basically because you 
had the Velvet Revolution, which brought in democracy. Well, now 
democracy to an extent was being undermined and surrendered by the 
presence of these shell companies and the networks of influence that 
they created.
    I've noticed, over time, as these companies have proliferated, 
other things have also proliferated. You've had many so-called 
alternative news sites pop up in Central Europe with similarly opaque 
ownership structures, which, not surprisingly, have a very Euro-skeptic 
line, a very anti-American line, a very pro-Kremlin line. I don't think 
these things are--I think these things are not unrelated to each other.
    So when--I mean, corruption undermines our most basic values, and I 
wanted to kind of riff off something Ilya said, where you said it's the 
G-7 versus the G-13. This is a very elegant way of saying something 
that--a theme that I've been playing with recently. I mean, we're not 
in a new Cold War right now. We're in a system--but we do have two 
normative systems essentially facing off against each other in the 
world. I like the way you put this, the G-7 versus the G-13, because 
it's a very elegant way to say it. One, to the west, is based on all 
these things we hold near and dear but appear to be under assault right 
now: the rule of law, the accountability of government, the sanctity of 
contracts, the subordination of power to the law. Then we have one to 
the east based on the things we're talking about on this panel today: 
cronyism, kleptocracy, the subordination of the law to power.
    Now unlike in the Cold War, we don't have two hermetically sealed 
systems. These things are not separated by a Fulda Gap or an Iron 
Curtain or a Berlin Wall. They are seeping into each other. And our 
values are, let's face it, attractive, and they do seep into the other 
side. The other side is forcing their values into our system, to the 
extent that we let them, and that's the operative phrase, ``to the 
extent that we let them.''
    So I hope that addresses your question, but this is how I see 
corruption undermining democratic values right now and why I see it as 
a national security threat of the first order.
    Mr. Massaro. Thanks, Brian. Dr. Aslund?
    Dr. Aslund. Yes, let me continue with three examples. The most 
innocuous is Gerhard Schroeder, the former chancellor of Germany, who 
is--immediately after he left as the chancellor of Germany became hired 
by Gazprom through Nord Stream, the gas pipeline. So he's legally paid 
big money, and he's still an important person in German politics. This 
is all legal.
    Second example: When Putin was prime minister, 2008 to 2012, he 
spent a large part of his time visiting various countries in all the 
Balkans, trying to promote South Stream. Whenever I see Putin one-on-
one without any aides with a political leader, I immediately suspect 
that corruption is the real matter there. [Laughter.] Of course, I 
can't know that.
    And the third example is Dmitry Firtash, the odious gas trader in 
Ukraine. And here you have a really crude case. Reuters published a 
wonderful article two years ago called ``Comrade Criminal.'' And they 
described how Dmitry Firtash got a credit line from Gazprom Bank for 
$11 billion. And for this money, he was allowed to buy gas cheaply in 
Russia and sell it for billions of dollars of sheer profit in Ukraine 
at a normal price. And then he was the main or--cofinanced the 
President Yanukovych election campaign for president in 2010 and 2012. 
A reasonable guess is that each of these cost him half a billion 
dollars. Ukrainian elections are very expensive, almost like American 
elections. [Laughter.] And of course Yanukovych was elected.
    So who is Firtash? Essentially this is a Russian agent who's called 
a gas trader because he carries out political operations to the benefit 
of Moscow. I might mention also that he was the financier of the 
Holodomor monument here, just beside the Congress, for $2.5 million a 
couple of years ago.
    Mr. Massaro. Thank you, Dr. Aslund. Marius, did you want to speak?
    Mr. Laurinavicius. Just to follow up on that, if you follow any 
story on undermining democracy in Europe or here in the U.S., you will 
find some Russian money behind that. Absolutely, because if you will 
take any support for anti-European practice in Europe, you will find 
that not a state-funded support. You will always find it's an oligarch 
or a Russian bank or something like that behind that. It's not state-
funded.
    If you will look to, let's say, the gathering of fascist movements 
in Moscow, they are doing that every year. So it is financed by Russian 
oligarchs.
    If you will look at the support to--let's take United States--to 
the secessionist movements in the United States, you will find Russian 
money and Russian oligarchs behind that. And it's not a funny issue. I 
really encourage all of you to look at the issue of secessionist 
movements and Russian support to them, because I really remember when 
we in Europe, we looked at the issue of Russian support to anti-
European parties some seven, eight years ago, and we laughed at that. 
We thought that it's a funny issue. Now we know that these are, well, 
movements and Russian support managed to--almost to, well, get to the 
brink of ruining of European Union.
    Mr. Massaro. Yes, that seems to be the theme. Ambassador Fried.
    Amb. Fried. I agree that you will find Russian money behind many of 
the anti-
European nationalist parties. But let us say France's Front National is 
not anti-European and nationalist because it receives Russian money. It 
receives Russian money because that's what it is already, which 
suggests that the way to solve this and to make our societies less 
vulnerable to that kind of interference is to work on the issues that 
brought the West to its current pass, where we are vulnerable to these 
arguments. It's not to take issue with the question of Russian money, 
but we--the Russians didn't cause our problem; they're merely feeding 
on it and contributing to it.
    Mr. Massaro. Thank you, Ambassador.
    Brian?
    Mr. Whitmore. If I may just jump in one more time--in terms of 
where all this money is coming from, I think there is one place we 
really need to be looking, and this refers back to my comments about 
organized crime in my initial comments. I don't know how many people 
remember the case of Eston Kohver, the Estonian law enforcement officer 
who was kidnapped back in September 2015 and taken across the border to 
Russia. This was a very big case, very appalling, a European Union 
citizen being kidnapped from the territory of a European Union state, 
brought back to Russia and put on a show trial.
    What was really, really telling about the Kohver case to me, 
however, was what Mr. Kohver was investigating. And I think this is 
crucial to understanding where this money comes from. Kohver was 
investigating a cigarette smuggling ring run out of eastern Estonia by 
Russian organized crime groups facilitated by the Federal Security 
Service of the Russian Federation.
    Now at first glance, this just looks like some bent FSB guys 
getting rich off a cigarette smuggling ring. That's not what it was. In 
my conversations with Estonian law enforcement officials, what it was, 
was essentially creating a chernaya kassa, a black account.
    Now if this is just one little cigarette smuggling ring, you 
multiply that across all of the operations going on that Russian 
organized crime is involved in, that are facilitated by the security 
services, you get a lot of untraceable cash. And you wonder where this 
money is going that is supporting xenophobic and far-right outfits 
across Europe, or supporting these so-called alternative media sites 
across Europe. And you begin to get a pretty good idea, because this 
gives the Kremlin a lot of money to play with, with no fingerprints on 
it. And I think this is one of the places we need to be looking.
    Mr. Massaro. Thanks, Brian.
    Additional questions? Right there.
    Questioner. Hi. My name's Dale Amberger [sp]. I'm an intern for 
Congressman Josh Gottheimer.
     Marius was talking about how instrumental this whole system is, 
the system of the KGB. Obviously, the cohort that's now in power went 
through the KGB. What's your assessment on the new guard? Because 
obviously they were not KGB trained. And is there any opportunity for 
us in the West to interact with these new emerging leaders?
    Mr. Massaro. I'm sorry. Who's your question for? Marius?
    All right. Please.
    Mr. Laurinavicius. Well, some of them are FSB trained, some of them 
not. But it's not just about the individuals. It's about the system. 
It's--KGB, from the very beginning it was--essentially, we make a 
mistake when we judge about the KGB as about some intelligence 
organization we have in the West. From the very beginning it was a 
criminal organization, not only because it controlled all the criminal 
world in the Soviet Union but because it has all kind of relations with 
terrorists, organized crime groups in the West and everywhere. And when 
I look at the nowadays situation, I really don't--looking back into KGB 
history, I don't see major differences and major new things. Only new 
things are some new tools, like social media or something like that. 
We're talking, let's say, about fake news. And we consider fake news a 
new phenomenon. Let's look back to the ideas like HIV was invented by 
CIA, or nuclear winter theory and many, many others--Pope XII 
collaboration with Nazis and many, many others. These are fake news 
which were invented decades ago, and now they're just doing the same 
thing using the new tools. That's it.
    Mr. Massaro. Yes. Dr. Aslund, willing to make a short comment?
    Dr. Aslund. Yes. well, this is not happening. What is happening is 
that there is a nationalization of a new elite. You can see three 
groups: technocrats, KGB officers, and nationalists.
    Putin has said, very clearly, either you stay in Russia and get a 
Russian education, or you go abroad and you stay there.
    Mr. Massaro. Thank you.
    So let's try to do one or two more questions. Right back there----
    Questioner. Hi. I'm an intern with Congressman Heck's office.
    Mr. Whitmore, earlier you talked about how there are two aspects of 
the Russian regime. There's the corruption and the ideological aspect. 
Could you and anyone else maybe expand on sort of how those two 
aspects, the ideological and the corruption, work in concert?
    Mr. Whitmore. Yes. I can. When I talk about the ideological, I want 
to be clear I'm talking about Putin's project of making Russia a great 
power again, making Russia great again, if you will. And so in this 
sense, there's good and bad corruption. If you have corruption that's 
operating abroad and creating networks of influence that you can then 
use to undermine democratic institutions in the West, be they in the 
near abroad or farther west--and on this regard, I would say I would 
echo what Marius said earlier: Everything that we're experiencing now, 
they were experiencing before. And I think we should really, really pay 
very close attention to what Russia does to its neighbors, because it's 
often a harbinger of what they're going to be doing to us a little bit 
later. I mean, remember, the Estonians were getting hacked before it 
was cool. [Chuckles.] OK?
    So this is corruption that works hand in glove with the ideological 
aims of the regime. When I described that complex ownership structure 
of this company called Vemex that is buying up energy assets in the 
Czech Republic, yeah, a lot of people are getting rich from this, and 
it's also advancing the interests of the state.
    Where it's not--where they're working in competition with each 
other, where ideological Russia and kleptocratic Russia, if you will, 
are working at cross purposes, I think we began to see evidence of this 
about a year ago, when we began to see Putin start to cull his inner 
circle, when we saw people like Vladimir Yakunin, the former head of 
Russian Railways, once considered one of the most powerful men in 
Russia, lose his job; when we saw Viktor Ivanov, who was head of the 
so-called antinarcotics service--which was nothing of the sort--but 
anyway, we saw him lose his job; when we saw Sergei Ivanov, the former 
Kremlin chief of staff, lose his job, this I interpreted as Putin 
basically trying to rein in some of the more kleptocratic elements of 
his inner circle, bringing in younger people who are going to be 
willing to steal less and work a little bit harder, essentially, if you 
will.
    So I think this was an attempt by ideological Russia to rein in 
kleptocratic Russia, because, let's face it, rebuilding an empire is 
very expensive. And this tension, I think, is something we always kind 
of need to keep our eye on, between these two Russias that, again, like 
I said, sometimes are working hand in glove but sometimes are working 
at cross purposes.
    Mr. Massaro. And on that, we'll conclude the briefing. Thank you so 
much, Brian. Thank you so much to the full panel. A fascinating 
briefing. And we'll see you all at the next one. [Applause.]
    [Whereupon, at 4:59 p.m., the briefing ended.]
 


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