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Sergey Kolesnikov's tale of palatial corruption, Russian style

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Thursday, December 23, 2010

You can see the sprawling, Italian-style palace on the Black Sea in satellite photos. There's a fitness spa, a hideaway "tea house," a concert amphitheater and a pad for three helicopters. It's still under construction, but already the cost is said to total more than $1 billion.

And most amazing of all, according to a Russian whistleblower named Sergey Kolesnikov, it was predominantly paid for with money donated by Russian businessmen for the use of Prime Minister Vladimir Putin. The funds have come "mainly through a combination of corruption, bribery and theft," charges Kolesnikov, a businessman who until November 2009 worked for one of the companies he alleges was investing money for Putin.

Kolesnikov lays out the story of this 21st-century czar's palace - and the secret funding network that is paying for it - in a remarkable open letter to Russian President Dmitry Medvedev. This letter was delivered Tuesday to the Russian U.N. mission in New York, and a full English translation is available online at CorruptionFreeRussia.com. It's one of the most detailed allegations I've seen of the links between Putin and Russia's "crony capitalism."

"The corruption is pervasive, and it is disgraceful and crippling for our great country," writes Kolesnikov, citing a recent Transparency International study claiming that corruption, overall, totals $250 billion to $300 billion annually. He calls on Medvedev to "show to our entire nation that everyone is equal before the law, even prime-ministers."

A spokesman for Putin declined to comment. One Russian source speculates that the Black Sea palace may be used to entertain guests during the 2014 Winter Olympics in nearby Sochi.

Kolesnikov is one of those brave souls a journalist meets occasionally, who decides to expose what he sees as wrongdoing, regardless of the personal risks. I met him this month and reviewed his notes and other documents supporting his charges. The Russian businessman, who became wealthy through various ventures, including a medical-supply company called Petromed, appears to have nothing to gain personally by attacking Putin - and much to lose. That boosts his credibility in my eyes.

The financing of Putin's hideaway, as Kolesnikov explains it, is a complicated story that centers on a man named Nikolai Shamalov. He is an old St. Petersburg friend of Putin's, with whom he shared a dacha cooperative property there during the 1990s. A Dec. 23, 2009, story in Novya Gazeta named Shamalov as one of Putin's 13 influential business "friends." An attempt to reach Shamalov through Putin's spokesman was unsuccessful.

Kolesnikov says he began working with Shamalov in 2000 after Putin became president. The initial plan was to use contributions from Russian businessmen to purchase medical equipment for clinics in St. Petersburg, with 35 percent of the contract payments diverted to offshore accounts. Millions of dollars of medical equipment was indeed purchased but more than $148 million of these donations allegedly wound up under Shamalov's control, according to the open letter.

In 2005, Kolesnikov told me, he was asked by Putin's friend to form an investment company called RosInvest. The ownership was hidden by anonymous "bearer shares," with the bulk held on Putin's behalf, Kolesnikov says he was told by Shamalov.

The palace project began in 2005 with the acquisition of state land near Praskoveevka. Shamalov eventually owned this "Project South," as it was known, through several front companies, the letter alleges. Kolesnikov says that he regularly reviewed invoices and other financial records and that by October 2009 projected spending had reached $1 billion.

Kolesnikov says Putin was briefed regularly on his hidden wealth. "Two or three times a year, during 8 years, at Shamalov's direction, I prepared financial summaries for him to personally update President Putin on his investments," he alleges in his letter. "Immediately following each of these meetings, Shamalov would provide me with Putin's comments and instructions for the use of funds."

It's a fact of life that in many nations, political leaders divert a share of private business deals for their own account, and Russians have gossiped about such corruption for the past two decades. What's unusual is to have such a detailed, on-the-record allegation. Today's Russia is a place where whistleblowers can end up dead.

The reason Kolesnikov decided to come forward, he writes, is that the costs of corruption "sap the very fiber of our people and our country." Whatever the history of the palazzo-on-the-sea, the larger point is surely right: Corruption is undermining Russia, and the only way it will stop is if brave people protest, and leaders take action.

davidignatius@washpost.com


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