Hybrid Business — The Risks In The Kremlin’s Weaponization Of The Economy by Mark Galeotti and Anna Arutunyan, EurasiaNet.org
A EurasiaNet Partner Post from: RFE/RL
“How many divisions does the pope have?” Josef Stalin was meant to have asked contemptuously. Today the question could as easily be posed: How many companies does the Kremlin have?
Russia’s government has a pernicious habit of treating business as yet another arm of politics, and this habit goes far beyond the notions of “kleptocracy” or “state capitalism.” The recent release of the so-called Panama Papers has directed attention toward the complex network of offshore shell companies used to hide, launder, move, and house funds acquired — through whatever means — by figures close to Putin, often through “donations” from oligarchs and businesses seeking favors or repaying debts. This is, however, the kind of personal enrichment familiar from kleptocracies the world over.
The case of the $2 billion in funds notionally held by Sergei Roldugin — musician and incidentally godfather of one of Putin’s daughters — highlights some of the more distinctive complexities of Russian practices. At least some of the funds from Roldugin’s offshores went not to fund palaces and resorts but were reinvested back into certain strategic companies important to the Russian state. In other words, the boundaries between apparent embezzlement and statecraft in Russia have become unclear and in some cases downright meaningless.
Russia as a state lends itself to all kinds of notions of hybridity: hybrid war, hybrid democracy, hybrid autocracy. What, then, is hybrid business? In almost Clausewitzian terms — and much like the concepts of hybrid democracy and hybrid autocracy — it reflects a process that goes both ways: Business is often politics by other means, just as politics is frequently business by other means, interchangeably, simultaneously, and often somewhere in between.
We can identify four ways in which this happens: when business is used, pure and simple, as an instrument of the state; when business interests and the bottom line are sacrificed to a higher political purpose; when companies make deals at the Kremlin’s bidding; and, finally, when businesses, in a peculiar Russian reversal, wind up actually hijacking the interests of the state. This typology is not mutually exclusive; some businesses that fit neatly into the first category can just as easily turn into perfect examples of the last. But the general pattern amounts to the often implicit outsourcing of government policy to business in a way that creates vulnerability not just for the businesses themselves but for the government as a whole.
Such patterns are not new, and go hand in hand with a deeply embedded history of the government co-opting business. Billionaire Vladimir Lisin complained in a recent interview that when state corporations control up to 60 percent of the economy, their very presence changes the rules of the game for everyone else; the motivation to invest comes not from business itself, but from state officials.
This is not a vestige of the Soviet planning economy, but goes back at least to the times of Peter the Great, when mining factories in the Urals were appropriated by the state when their production fell. A similar blurring of economic and political interests is a leitmotif of Russian history, from the forced industrialization of the late 19th century to the forced labor of the gulags.
Nonetheless, today, in an era of corruption schemes and offshore leaks, hybrid business and its weaponization by the government have emerged as both a central feature of Russian governance and a potent risk both to itself and the outside word.
The most compelling case of how certain businesses and businessmen are instrumentalized for political and even geopolitical ends is Konstantin Malofeyev, founder of the Marshall Capital investment group. As a direct investor in telecommunications and media, Marshall Capital was already well integrated in economic sectors of strategic importance. But Malofeyev himself exhibited ideological leanings toward Orthodoxy and nationalism, something that, despite persistent legal issues, placed him in direct alignment with the Kremlin’s goals in 2014.
Ukraine and the European Commission have accused Malofeyev of financing pro-Russian separatist insurgents in East Ukraine through his Basil the Great Charitable Foundation. Though he has denied these allegations, there are more compelling factors linking the businessman to the conflict. His former employees include Aleksandr Borodai, who led the separatist Donetsk People’s Republic group until August 2014, and more importantly Igor Strelkov, the man who claims he “pulled the trigger on the war” in the Donbas. Malofeyev himself admitted in a November 2015 interview to Vedomosti that Borodai served as his consultant and introduced him to Strelkov (whose real name is Girkin) in late December 2013 or early January 2014.
The nature of even more direct political links between Malofeyev and the Kremlin emerged in February 2015. The newspaper Novaya Gazeta acquired a document drafted by people close to Malofeyev, which was then passed on to the Presidential Administration. Even before erstwhile Ukrainian President Yanukovych had fled the country, it outlined a game plan for the annexation of Crimea as well as the Donbas. The process outlined in the document — “sovereignization and the unification with Russia” — was what rebels who captured government buildings in the region in April 2014 would demand. Control of Ukraine’s gas infrastructure was cited as the chief motive in the report, arguing that loss of control of this infrastructure would jeopardize Gazprom’s positions in central and southern Europe.
If authentic, the document corroborates a model of lobbying practices around the Kremlin, a “marketplace” of policies where various bidders pitch ideas to Vladimir Putin or those close to him in hopes of catching his eye or winning his favor. The commitments made by the Kremlin in response to such overtures are usually verbal and vague, allowing it to opt out of responsibility any time but likewise raising risks of the outsourced policy getting out of control. In this way, the involvement of Malofeyev and his capital in the war in Ukraine suggests another vector of hybridization: the extent to which his own ideological leanings contributed to the Kremlin’s decision to intervene further in Ukraine and thus, perhaps to some extent, even hijacked state interests.
Agents of the State
If Malofeyev’s case is one in which the precise lines and directions of influence are especially unclear, there are certainly numerous examples of organizations technically meant to be operating on a commercial basis — which may include government-owned or majority owned ones such as oil giant Rosneft or the Uralvagonzavod machine-building corporation — which instead become willingly or routinely used for the purposes of statecraft, regardless of the balance of profit and loss. Mercenaries from the private military company ChVK Wagner, for example, are fighting and dying in Syria, but this is actually a body founded at the initiative of the government, funded by the government, and directed by the government — and yet technically presented as a wholly independent, commercial group. Not least, that helps keep the “official” body count down — although reportedly casualties suffered by Wagner’s men are in the dozens, only seven Russian servicemen have been killed.
Businesses wind up co-opted into the government’s domestic and geopolitical goals in other, less kinetic ways. Yevgeny Dvoskin’s Genbank has enjoyed protection from the Federal Security