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### Viewing cable 10MOSCOW317, THE LUZKHOV DILEMMA

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
10MOSCOW317 | 2010-02-12 15:03 | 2010-12-01 21:09 | SECRET | Embassy Moscow

`

    VZCZCXRO2697
    OO RUEHDBU
    DE RUEHMO #0317/01 0431539
    ZNY SSSSS ZZH
    O 121539Z FEB 10
    FM AMEMBASSY MOSCOW
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 6214
    INFO RUCNCIS/CIS COLLECTIVE IMMEDIATE
    RUEHXD/MOSCOW POLITICAL COLLECTIVE IMMEDIATE
    RHMFISS/FBI WASHINGTON DC IMMEDIATE
    RHEHNSC/NSC WASHDC IMMEDIATE
    RUEAIIA/CIA WASHDC IMMEDIATE

` `

    S E C R E T SECTION 01 OF 03 MOSCOW 000317

    SIPDIS

    E.O. 12958: DECL: 02/11/2020
    TAGS: PGOV PREL PHUM PINR ECON KDEM KCOR RS
    SUBJECT: THE LUZKHOV DILEMMA

    Classified By: Ambassador John R. Beyrle.  Reason:  1.4 (b), (d).

    ¶1. (C) Summary:  Moscow Mayor Yuriy Luzhkov remains a loyal
    member of United Russia, with a reputation for ensuring that
    the city has the resources it needs to function smoothly.
    Questions increasingly arise regarding Luzhkov's connections
    to the criminal world and the impact of these ties on
    governance.  Luzhkov remains in a solid position due to his
    value as a consistent deliverer of votes for the ruling
    party.  Unfortunately, the shadowy world of corrupt business
    practices under Luzhkov continues in Moscow, with corrupt
    officials requiring bribes from businesses attempting to
    operate in the city.  End Summary.

    Overview: The Kremlin's Luzhkov Dilemma
    ---------------------------------------

    ¶2. (C) Moscow Mayor Yuriy Luzhkov is the embodiment of
    political dilemma for the Kremlin.  A loyal, founding member
    of United Russia and a trusted deliverer of votes and
    influence for the ruling party and its leader, Prime Minister
    Putin,  Luzhkov's connections to Moscow's business community
    -- the big and legitimate as well as the marginal and corrupt
    -- has enabled him to call for support when he needs it, to
    deliver votes for United Russia, or to ensure that the city
    has the resources it needs to function smoothly.  Luzhkov's
    national reputation as the man who governs the ungovernable,
    who cleans the streets, keeps the Metro running and maintains
    order in Europe's largest metropolis of almost 11 million
    people, earns him a certain amount of slack from government
    and party leaders.  He oversaw what even United Russia
    insiders acknowledge was a dirty, compromised election for
    the Moscow City Duma in October, and yet received only a slap
    on the wrist from President Medvedev.

    ¶3. (C) Muscovites are increasingly questioning the standard
    operating procedures of their chief executive, a man who, as
    of 2007, they no longer directly elect.  Luzhkov's
    connections to the criminal world and the impact that these
    ties have had on governance and development in Moscow are
    increasingly a matter of public discussion.  Although Luzhkov
    was successful in winning court-ordered damages from
    opposition leader Boris Nemtsov for his recent publication
    "Luzhkov: An Accounting," Nemtsov and his Solidarity-movement
    allies were heartened by the fact that the judge did not
    award damages on the basis of the corruption accusations
    themselves, but rather on a libel technicality.

    ¶4. (C) Few believe that Luzhkov will voluntarily relinquish
    his post prior to 2012, when the Moscow City Duma must submit
    a list of mayoral candidates to Medvedev for his selection.
    United Russia will probably call on Luzhkov's political
    machine and his genuine public support to deliver votes for
    them in the 2011 State Duma elections, as well as the 2012
    Presidential contest.  With no apparent successor in line,
    and with no ambitions beyond remaining mayor, Luzhkov is in a
    solid position.  The evidence of his involvement -- or at
    least association -- with corruption remains significant.
    This cable presents that side of Luzhkov -- one that bears
    not only on Luzhkov and his handling of local politics, but
    on Putin and Medvedev as they move toward the 2012 elections.

    Background on Moscow's Criminal World
    -------------------------------------

    ¶5. (C) The Moscow city government's direct links to
    criminality have led some to call it "dysfunctional," and to
    assert that the government operates more as a kleptocracy
    than a government.  Criminal elements enjoy a "krysha" (a
    term from the criminal/mafia world literally meaning "roof"
    or protection) that runs through the police, the Federal
    Security Service (FSB), Ministry of Internal Affairs (MVD),
    and the prosecutor's office, as well as throughout the Moscow
    city government bureaucracy.  Analysts identify a
    three-tiered structure in Moscow's criminal world.  Luzhkov
    is at the top.  The FSB, MVD, and militia are at the second
    level.  Finally, ordinary criminals and corrupt inspectors
    are at the lowest level.  This is an inefficient system in
    which criminal groups fill a void in some areas because the
    city is not providing some services.

    ¶6. (C) XXXXXXXXXXXX,
    told us that Moscow's ethnic criminal groups do business and
    give paybacks.  It is the federal headquarters of the
    parties, not the criminal groups, who decide who will
    participate in politics.  XXXXXXXXXXXX argued that the
    political parties are the ones with the political clout;
    therefore, they have some power over these criminal groups.

    MOSCOW 00000317  002 OF 003

    Crime groups work with municipal bureaucrats, but at a low
    level.  For example, the Armenians and Georgians were
    formerly heavily involved in the gambling business before
    city officials closed the gambling facilities.  These ethnic
    groups needed protection from law enforcement crackdowns, so
    they sought cooperation with the municipal bureaucrats.  In
    such scenarios, crime groups paid the Moscow police for
    protection.

    Luzhkov's Links to Criminal Figures
    -----------------------------------

    ¶7. (S) XXXXXXXXXXXX
    XXXXXXXXXXXX, told us that Luzhkov's wife,
    Yelena Baturina, definitely has links to the criminal world,
    and particularly to the Solntsevo criminal group (widely
    regarded by Russian law enforcement as one of the most
    powerful organized crime groups in Russia).  According to the
    Internet article, "On the Moscow Group," Vladimir
    Yevtushenko, the head of the company Sistema, is married to
    Natalya Yevtushenko, Baturina's sister.  Sistema was created
    with Moscow city government-owned shares, and Sistema
    initially focused on privatizing the capital's real estate
    and gas.  Sistema's president, Yevgeny Novitsky, controlled
    the Solntsevo criminal gang.  Today, Sistema has spun off
    into various companies, which implement projects that
    typically include 50 percent funding from the Moscow city
    government.

    ¶8. (S) According to XXXXXXXXXXXX, Luzhkov used criminal money to
    support his rise to power and has been involved with bribes
    and deals regarding lucrative construction contracts
    throughout Moscow.  XXXXXXXXXXXX told us that Luzhkov's friends and
    associates (including recently deceased crime boss Vyacheslav
    Ivankov and reputedly corrupt Duma Deputy Joseph Kobzon) are
    "bandits."  He told us that he knew this because he formerly
    had contacts in these criminal groups, but many of his
    contacts have since been killed.  XXXXXXXXXXXX said that the Moscow
    government has links to many different criminal groups and it
    regularly takes cash bribes from businesses.  The people
    under Luzhkov maintain these criminal connections.  Recently,
    ultranationalist LDPR opposition party leader Vladimir
    Zhirinovskiy strongly criticized Luzhkov and called for him
    to step down, claiming that Luzhkov's government was the
    "most criminal" in Russian history.  This remarkable
    denunciation, carried on state TV flagship Channel One, was
    widely seen as an indirect Kremlin rebuke of Luzhkov.

    ¶9. (S) XXXXXXXXXXXX told us everyone knows that Russia's laws do not
    work.  The Moscow system is based on officials making money.
    The government bureaucrats, FSB, MVD, police, and
    prosecutor's offices all accept bribes.  XXXXXXXXXXXX stated that
    everything depends on the Kremlin and he thought that
    Luzhkov, as well as many mayors and governors, pay off key
    insiders in the Kremlin.  XXXXXXXXXXXX argued that the vertical
    works because people are paying bribes all the way to the
    top.  He told us that people often witness officials going
    into the Kremlin with large suitcases and bodyguards, and he
    speculated that the suitcases are full of money.  The
    governors collect money based on bribes, almost resembling a
    tax system, throughout their regions.  XXXXXXXXXXXX described how
    there are parallel structures in the regions in which people
    are able to pay their leaders.  For instance, the FSB, MVD,
    and militia all have distinct money collection systems.
    Further, XXXXXXXXXXXX told us that deputies generally have to buy
    their seats in the government.  They need money to get to the
    top, but once they are there, their positions become quite
    lucrative money making opportunities.  Bureaucrats in Moscow
    are notorious for doing all kinds of illegal business to get
    extra money.

    ¶10. (S) According to XXXXXXXXXXXX, Luzhkov is following orders
    from the Kremlin to not go after Moscow's criminal groups.
    For example, XXXXXXXXXXXX argued that it was only a public
    relations stunt from Putin to close gambling.  In contrast to
    XXXXXXXXXXXX said he did not see the sense in suitcases
    of money going into the Kremlin since it would be easier to
    open a secret account in Cyprus.  He speculated that the
    Moscow police heads have a secret war chest of money.
    XXXXXXXXXXXX said that this money is likely used to solve
    problems that the Kremlin decides, such as rigging elections.
    It can be accessed as a resource for when orders come from
    above, for example, for bribes or to pay off people when
    necessary.  XXXXXXXXXXXX postulated that the Kremlin might say
    to a governor that he can rule a certain territory but in
    exchange he must do what the Kremlin says.

    ¶11. (C) Notwithstanding Luzhkov's solid position, some of our
    contacts believe that cracks have appeared in his armor, due

    MOSCOW 00000317  003 OF 003

    to his corrupt activities.  XXXXXXXXXXXX told us that Luzhkov has
    many enemies because his wife has the most lucrative business
    deals in Moscow and many people think Luzhkov has received
    too much money.  The son of the head of the interior police,
    Vladimir Kolokotsev, told XXXXXXXXXXXX that Kolokotsev's number one
    job is to get Luzhkov out within a year.  Kolokotsev was
    credited with removing long-standing Governor Yegor Stroyev
    from Orel.  XXXXXXXXXXXX asserted that Luzhkov is "on his way
    out," although he acknowledged that the Kremlin has not
    identified a suitable replacement yet.  Issues such as
    corruption and traffic congestion have, to a certain degree,
    eroded Luzhkov's popularity.  Putin, XXXXXXXXXXXX said, will
    likely pick the quietest and least expected person to replace
    Luzhkov.

    In Moscow, Everyone Needs a "Krysha"
    ------------------------------------

    ¶12. (C) According to many observers, the lawless criminal
    climate in Russia makes it difficult for businesses to
    survive without being defended by some type of protection.
    XXXXXXXXXXXX explained how bribes work in Moscow:  a cafe owner
    pays the local police chief via cash through a courier.  He
    needs to pay a certain negotiated amount over a certain
    profit.  The high prices of goods in Moscow cover these
    hidden costs.  Sometimes people receive "bad protection" in
    the sense that the "krysha" extorts an excessive amount of
    money.  As a result, they cannot make enough of a profit to
    maintain their businesses.  If people attempt to forego
    protection, they will instantly be shut down.  For example,
    officials from the fire or sanitation service will appear at
    the business and invent a violation.  According to
    XXXXXXXXXXXX, everyone has bought into the idea of protection
    in Moscow, so it has become a norm.  In general, Muscovites
    have little freedom to speak out against corrupt activities
    and are afraid of their leaders.

    ¶13. (C) XXXXXXXXXXXX explained that Moscow business owners
    understand that it is best to get protection from the MVD and
    FSB (rather than organized crime groups) since they not only
    have more guns, resources, and power than criminal groups,
    but they are also protected by the law.  For this reason,
    protection from criminal gangs is no longer so high in
    demand.  Police and MVD collect money from small businesses
    while the FSB collects from big businesses.  According to
    XXXXXXXXXXXX, the FSB "krysha" is allegedly the best protection.  He
    told us that, while the MVD and FSB both have close links to
    Solntsevo, the FSB is the real "krysha" for Solntsevo.  This
    system is not an incentive for smaller businesses and nobody
    is immune; even rich people who think they are protected get
    arrested.  According to Transparency International's 2009
    survey, bribery costs Russia USD 300 billion a year, or about
    18 percent of its gross domestic product.  XXXXXXXXXXXX argued
    that the "krysha" system has led to an erosion of police
    internal discipline.  For instance, young police officers
    spend their money buying luxury vehicles that a normal worker
    could never afford.

    Comment
    -------

    ¶14. (S) Despite Medvedev's stated anti-corruption campaign,
    the extent of corruption in Moscow remains pervasive with
    Mayor Luzhkov at the top of the pyramid.  Luzhkov oversees a
    system in which it appears that almost everyone at every
    level is involved in some form of corruption or criminal
    behavior.  Putin and Medvedev's dilemma is deciding when
    Luzhkov becomes a bigger liability than asset.  While public
    sentiment against Luzhkov has grown since the "tainted"
    elections in October 2009, United Russia's leadership knows
    that he has been a loyal supporter who can deliver voter
    support. Ousting Luzhkov before he is ready to go could
    create major difficulties because he could link others in the
    government to the corruption.  While reforming Luzhkov's
    questionable activities might seem like the right thing to
    do, for now keeping him in place, efficiently running the
    city, is United Russia's best option.  Ultimately, the tandem
    will put Luzhkov out to pasture, like it has done with fellow
    long-term regional leaders like Sverdlovsk oblast governor
    Edward Rossel and Tatarstan President Mintimir Shaymiyev.

    Beyrle

`