Where the Russian justice system has failed to step up to the plate, the Financial Times has taken up the slack:

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Documents from Mr Kolesnikov, together with a Financial Times investigation, help to lift the veil on the history of Bank Rossiya, whose shareholders include several men with close links to Vladimir Putin, Russia’s supreme leader, including the son of his cousin. Yury Kovalchuk and Niko­lai Shamalov, two of its biggest shareholders, were co-founders with Mr Putin of a lakeside dacha enclave outside St Petersburg.

These men from Russia’s second city are seen by many businessmen and bankers as the core of a new generation of Putin-era oligarchs, combining wealth with links to the country’s top leadership just as their predecessors during the Boris Yeltsin years had done. This is despite Mr Putin’s pledge nearly 12 years ago to eliminate oligarchs as a class.

Now that Mr Putin plans to return as president in elections next March, after four years as prime minister under President Dmitry Medvedev, claims of a new system of crony capitalism are under scrutiny.

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The paper trail Mr Kolesnikov has disclosed to the FT appears to show for the first time how two Bank Rossiya shareholders – Mr Shamalov and Dmitry Gorelov, a former KGB colonel – received via an offshore company funds originally donated for equipment for St Petersburg hospitals, just as they bought their bank stakes.

The documents then appear to show that these same funds and offshore companies may have helped finance the first in a string of Bank Rossiya acquisitions of financial assets from Gazprom, the state-controlled gas producer. Some investors allege the deals that followed were quasi-privatisations that helped to drain billions of dollars in value out of a gas group that had come to symbolise Russia’s commodities-fuelled resurgence. Bank Rossiya rejects this as “nonsense”, saying its growth is due to its professional management and successful strategy as a universal bank. The bank’s assets stood at Rbs274bn ($8.9bn) by October 1, up from Rbs6.7bn at the start of 2004 – a compound annual growth rate of more than 60 per cent.

Read the full article at the Financial Times.

Mikhail Kasyanov, who served as Prime Minister from 2000 to 2004, told the Financial Times that then-President Vladimir Putin personally spoke with him about the case against Khodorkovsky.  Kasyanov, now an opposition politician who leads the Russian People’s Democratic Union, said Putin was unhappy with Khodorkovsky’s campaign financing for the Communist Party.

“He told me Khodorkovsky…was financing the Communist party without his agreement,” Kasyanov said.  In the same closed-door conversation, Putin told Kasyanov that the western-leaning Yabloko and Union of Right Forces parties were being financed by Khodorkovsky under the Kremlin’s direction.  “He did not say any more,” Kasyanov explained.

Putin’s confession, Kasyanov said, came after he repeatedly pressed the president on the reason for the arrests of Khodorkovsky and his associate, Platon Lebedev.  Kasyanov believes Putin may have been concerned that the Communists would form a block with the liberal rightists parties and pose a serious threat to Putin’s United Russia Party in the 2003 State Duma elections.

Putin press-secretary Dmitri Peskov declined to comment on Kasyanov’s statement.

The former PM has pledged to support Khodorkovsky and Lebedev in their case before the European Court of Human Rights in Strasbourg.  Initial hearings are set to start in November.

Read more from the Financial Times.

Kasparov writes: “Is it only my dictionary that fails to distinguish between “appeasement” and Mr Kissinger’s use of the word ‘engagement?’”

Full article below.

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Western flattery ignores the dark reality of Russia
By Garry Kasparov
July 11 2008
Financial Times

Recently we have witnessed a flurry of high-profile and contradictory statements on the Russian state. In a role reversal, Russia’s leaders have been abnormally candid while several prominent western politicians and pundits have lavished undeserved praise.

Russian president Dmitri Medvedev was bold enough last week to state that democracy is irrelevant to the Group of Eight leading nations. It is sad to see that some of Europe’s leaders seem to agree with him. He also accidentally told the truth by saying that while political competition could be a good thing, it must be “competition correctly built”, a phrase of which George Orwell would have been proud.

Despite broad acknowledgement that our March presidential elections were neither free nor fair, Terry Davis, the Council of Europe secretary-general, recently expressed his admiration for Prime Minister Vladimir Putin and President Medvedev. His comments about “growth” and “progress” make it clear that, to the council, the importance of liberty and democracy in Russia is inversely correlated to the prices of oil and gas. Such behaviour helps legitimise fraudulent elections and the dictatorial regime that runs them.

It is a pity for Robert Mugabe Zimbabwe does not enjoy a surplus of oil and natural gas. Without those assets his election victory is denounced as a sham and nations around the world call for him to be ousted. At this week’s G8 summit, George W. Bush, US president, denounced Mr Mugabe while sitting next to Mr Medvedev, whose hold on power is similarly counterfeit. The Russian security services’ methods are more subtle than machetes but our democracy is no more real than Zimbabwe’s. The European fantasy appears to be that oil revenue and designer boutiques will magically turn Russia into a real democracy. Oil wealth is nearly always a curse on human rights, not a blessing. Louis Vuitton and Cartier are not going to do the job that the so-called leaders of the free world have abdicated.

In a recent opinion article, Henry Kissinger asked that the US “give Russia some space”. Space to create a new class of political prisoners, to loot the country, to bully our neighbours? Is that what brought down the Berlin Wall and ended the cold war? Is it only my dictionary that fails to distinguish between “appeasement” and Mr Kissinger’s use of the word “engagement”?

After eight years of being given plenty of space, Mr Putin and his team of well-trained oligarchs have assembled an efficient machine to move the wealth from every corner of Russia into private hands. While I hope and believe that the people of Russia are capable of standing up for our rights, it is unhelpful to our cause when the west provides the Putin regime with democratic credentials or acts as though democracy is, to use Mr Medvedev’s word, irrelevant.

Instead of listening to those who are eager to stay in the good graces of the Kremlin, listen to Russia’s leaders after eight years of Mr Putin’s total control, years in which the price of oil rose 700 per cent. They speak with the candour of impunity. Mr Medvedev has said the biggest problems facing Russia are “endemic corruption and a dysfunctional legal system”. Just days ago finance minister Alexei Kudrin shared the thought that “a growth spurt in the economy of central Russia would lead to the collapse of the railway and transportation infrastructure”. These statements do not come from opposition “extremists” such as myself. (“Extremist” being the tried-and-true label of choice for anyone who disagrees with the regime.)

One glance at the headlines is enough to separate western fantasies from Russian reality. Savva Terentiev, a musician from Syktyvkar, 1,500 km north of Moscow, just received a one-year suspended sentence for a sarcastic blog post criticising the local police. The Russian security matrix is moving into the virtual world.

Or take this note about our vaunted new middle class. An EU-Russia Centre survey has found that 50 per cent of Russia’s best-educated and most prosperous citizens would emigrate if they could. The top reasons were instability and danger from law enforcement. Some 83 per cent said they did not believe they had the ability to influence the political direction of the country. It seems I am not the only one who would like to live in the Russia of which Mr Davis and Mr Kissinger speak so fondly. It is a shame it does not exist.

The writer is leader of the Other Russia pro-democracy coalition and a former world chess champion

Copyright The Financial Times Limited 2008