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By Inessa Slavutinskaya

The Kirsan saga
Why the Kremlin can't do anything about President Iliumzhinov of Kalmykia

Profil, No. 25, July 2, 2001, pp. 12-15

The Auditing Chamber Chairman Sergei Stepashin suffered a crushing defeat on June 22. The team of auditors he had sent to Kalmykia (in part, with the goal of proving misuse of state funds by President Kirsan Iliumzhinov) did find some infractions - but these were so small that they can be handled within standard procedures. This means that the expected major criminal charges in Kalmykia are unlikely to materialize.

Allegedly Stepashin was devastated by the team's findings. Not only because his first major project as head of the Auditing Chamber has flopped - but because President Putin isn't accustomed to such obvious failures by his subordinates.

Three months of work by a team of 50 people has been wasted; even though a blind man could see lawlessness in Kalmykia, as most of the politicians we asked about said.

Moreover, when Iliumzhinov was invited to attend an Auditing Chamber meeting chaired by Stepashin, he didn't even deign to grace it with his presence sending some of his ministers in his stead, thus telling the senior Moscow official that the President of Kalmykia had much more important things to do.

The meagre results of all these titanic efforts by the auditors has been a big disappointment for the Yabloko faction in the Duma, which has persistently opposed Iliumzhinov; this faction had requested the audit of Kalmykia.

Nevertheless, Yabloko intends to keep working on Iliumzhinov. Deputy faction leader Sergei Ivanenko says: "The investigation by the Auditing Chamber isn't the last word. The fact that some commission or other didn't find something there isn't enough to support a definitive conclusion. Yabloko will continue taking an interest in Iliumzhinov - we will send ten more requests. Water can erode stone." That may well be true; however, regarding Kalmykia's off-shore status and misuse of state funds - well, in Russia it's always been the custom to deceive the Tsar or even steal from him. The federal government's attempts to expose this custom and call it by its true name - theft - requires certain preconditions which simply aren't present in Kalmykia.

In Iliumzhinov's republic the criminal underworld is fairly quiet, and there is no internal political feuding; therefore, says one of our Kremlin sources, it's pointless to go digging there: "They found nothing in Kalmykia - solely because all the loose ends had been tidied up and hidden well away, long ago. Investigating and digging things up can only be done where there is a conflict within the elite and some people are prepared to inform on others. There is no such conflict in Kalmykia; they're all united. Besides, Iliumzhinov plays on the Kalmyk people's sense of ethnic identity, constantly reminding them of the Stalinist deportation era. The Kalmyks still haven't forgiven Moscow for that deportation."

The Kremlin wants its own person in charge of Kalmykia, as Kalmykia is very significant strategically. There is a major battle underway among various ethnic groups in the Caucasus (Kalmykia shares a border with Dagestan, and Chechnya isn't too far away) and big business: this republic lies on the shores of the oil-rich Caspian Sea, and Sibneft has its eye on that (since LUKoil is now weaker in that region). What's more, Kalmykia has access to the Volga; and the strategic road from the Volga to the Caucasus runs across Kalmykia.

However, replacing Iliumzhinov peacefully - by means of elections, for example - doesn't seem possible: in the last Kalmykian presidential election, he received 85% of the vote. This requires a search for non-peaceful methods - like Stepashin's recent investigation. But this appears to be water off a duck's back for Iliumzhinov right now.

Iliumzhinov has sole control over all business in his republic and wouldn't mind expanding onto the federal level. Allegedly he is theš de facto co-owner of the TV-6 television network, although this isn't set out in writing - it's just that at one time, he loaned money to Eduard Sagalaev, former head of TV-6, and can now demand repayment from TV-6. Rumour has it that the sum involved is impressive: $8-10 million. Sources at TV-6 allege that Iliumzhinov wanted to buy the company outright a year ago: however, the main owner Boris Berezovsky thought it over and refused to sell.

But even without this television station, Iliumzhinov would be unlikely to find favour with the present Kremlin regime. According to a source in the Duma: "First of all, the Kremlin is undoubtedly annoyed by the Kalmykia off-shore zone. Since 1995, Kalmykia has had a system whereby all local taxes for non-residents are replaced by a quarterly payment of $300 to the Development and Cooperation Agency (ARIS). At present, five or six thousand such non-resident-banks and other enterprises are registered in Kalmykia. Iliumzhinov calculated that there was no point in collecting local taxes, especially when there's no one to collect them from, if he can get more money by registering these off-shore companies (up to $10 million a year). The federal government can't do anything about this at present, as this is not illegal. But the situation is difficult to accept, as such arbitrary taxation practices strike at the state's financial system and regional economic development. Consequently tax reform plans place a priority on stamping out regional off-shore zones. The second thing that irritates the Kremlin is caviar: Kalmykia is considered the centre of illegal caviar production and black-market exports. The third factor is Kalmneft (Kalmykia Oil). With the help of a decree issued by Yeltsin, Iliumzhinov managed to separate from Rosneft all its resources in Kalmykia, and create his own Kalmykian oil company."

If all this is true, is Stepashin's Auditing Chamber strong enough to take on such a powerful figure? Viktor Pokhmelkin of the Union of Right-Wing Forces faction, a member of the Duma Legislation Committee, has his own opinion: "Quite possibly, the Kremlin initially issued the command to put the squeeze on Iliumzhinov - but later on, during the audit, the Kremlin may have changed its mind, or both parties reached some kind of agreement. Honour among thieves is the law behind the nomenklatura's existence, especially in the Russian state. The point is that a show of trying to cleanse the ranks must be maintained for the Russian public and the international community; but in reality, no one who enters this nomenklatura game and abides by its laws (allowing theft while saving face) will ever fall out of play - and that's what is happening with Iliumzhinov."

Yabloko faction member Valerii Ostanin adds: "The prime minister of Kalmykia was unable to answer when asked how the controlling interest in Kalmneft was bought out for virtually nothing, and how Kirsan Iliumzhinov's brother ended up owning the company. In response to all my requests for information, I am told: well, since the state doesn't hold an interest in this company, you - even as a Duma deputy - don't have the right to request commercial information about the participants or shares of participation. Iliumzhinov's favourite football club, Uralan, has received 70.2 million roubles in state funding - which is two-and-a-half times more than has been spent on education in Kalmykia, including child welfare payments. Look what happened in one of the cases when criminal proceedings were instigated over infringements by ARIS: although the former prosecutor of Kalmykia undertook to deliver the evidence personally to the General Prosecutor's Office, somehow he had an accident along the way - and the criminal case burned up along with the car. The former prosecutor got off with a scare, only losing his job as prosecutor."

Whether the Kremlin will succeed in depriving Iliumzhinov of power is highly debatable. In any case, the presidential administration's grandiose plan - to replace Iliumzhinov with Alexandra Burataeva, former TV star and now Duma deputy - is further evidence of the over-active imagination of Kremlin strategists.

See also:

The Murder of Larissa Yudina. Chronicle of Events

Russia's Road to Corruption

Profil, No. 25, July 2, 2001, pp. 12-15

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