New details of financial frauds, which took place in the Defense Ministry between 1995 and 1999, are being currently revealed. So far, charges were announced only against one of their participants, former chief accountant of the Defense Ministry Georgy Oleinik. In late April, the Moscow Garrison Military Court found Oleinik guilty of exceeding his powers (Clause 286 of the Criminal Code) in the financial transaction involving transfer of 450 million rubles to Ukraine. This is the only completed case out of several criminal proceedings. There are also some others, which the Main Military Prosecutor’s Office is investigating with regard to Oleinik and a number of other former and active officials of the Defense Ministry.
So far, only Oleinik received new charges. Hence, instead of amnesty, he was placed in custody on the date of announcement of the verdict and sent to the Matrosskaya Tishina prison. The available facts show that not only Oleinik may be put on trial. Officials of the Chamber of Public Accounts say that former Defense Ministers Pavel Grachev, Igor Rodionov, Igor Sergeev and a number of their deputies, including incumbent deputy of Sergei Ivanov for financial and economic issues Lubov Kudelina and some generals of the Defense Ministry and General Staff may also be involved. The Main Military Prosecutor’s Office is already interrogating some of them as witnesses.
Foreign currency accounts of the Defense Ministry worth $54 million constitute the subject of investigation. After 1995, these accounts were converted into securities several times, and were finally lost as a result of alleged “negligence” of some officials of the Defense Ministry. Incidentally, $54 million is not a small sum. In 1995, this was real money earned from sale of the spare property of the troops withdrawn from the Western Group of Forces and other ex-budget operations of the state. For example, it was then possible to build more than 1,500 apartments for this sum. At any rate, the top-ranking military officials acted in their own way.
With permission of Pavel Grachev, the foreign currency accounts of the Defense Ministry in Vneshekonombank were converted into Domestic State Foreign Currency Loan Bonds (OVZ), which were accumulated in the Main Department of the Military Budget and Financing with breaches of the Civil Code. With permission of the Defense Minister, the department transferred the package of OVZs for responsible storage and entrusted management for five years to the East European Investment Bank (later renamed into the Military Bank). According to the law, departments of the Defense Ministry cannot carry out commercial activities. According to the Civil Code, state institutions are prohibited to transfer property being in their operational control to anybody for entrusted management. Thus, breaches were evident, but neither Grachev, nor Rodionov, nor Sergeev disclosed them. After the default of 1998, almost all money of the Ministry in the Military Bank “burnt up”. However, Igor Sergeev, who was the Defense Minister then, agreed to continue cooperation with the bank. Sergeev denies that he ordered Oleinik to forgive debts to the bank. In its documents, the Chamber of Public Accounts notes that, being Director of the Main Department of the Military Budget and Financing, Oleinik “struck two deals on December 7, 1998 without permission of the Defense Minister and exceeding his powers: sale of OVZs with a par value of $54 million to the bank for $4.7 million and giving instructions to the Main Department of the Military Budget and Financing to buy interest-bearing non-documentary inscribed bonds of the bank convertible into its shares worth 337.4 million rubles. Later the department bought such bonds worth 6.6 million rubles too.”
Incidentally, this happened during the financial crisis, when there were long delays in payment of wages to officers. Then the Defense Ministry had to give bread, milk and other products from its warehouses to officers’ families daily to prevent “hunger riots.” Is it possible that Sergeev did not know that the Main Department of the Military Budget and Financing was misusing the money in a time when every ruble in the budget of the Defense Ministry was as precious as gold? Lubov Kudelina was the supervisor for the Defense Ministry in the Finance Ministry then. She has already been interrogated about the case involving the lost “Ukrainian” millions. She will also definitely be interrogated about the cases involving the loss of the OVZs by the Defense Ministry. Due to the nature of her work in the Finance Ministry, she also had to wonder why the Main Department of the Military Budget and Financing was striking illegitimate deals. However, she did not notice the deals.
Kudelina, Vavilov and other officials presented testimonies in the “Ukrainian case” such that only the former chief accountant of the Defense Ministry turned out to be guilty. So far, only Oleinik is accused under the new case about the loss of the OVZs as well.
The Chamber of Public Accounts, which inspected the Defense Ministry with regard to these facts, issued the following verdict. Oleinik acted in an economically inexpedient manner that contradicted legal acts and rules. With regard to these facts Oleinik already received new charges according to the same clause as in the “Ukrainian case,” namely exceeding official powers (clause 286 of the Criminal Code). However, is only Oleinik guilty? Between 1995 and 1998, prior to its default, the Military Bank paid annual interest of 3% on securities to the Defense Ministry regularly, as well as 1% fee for entrusted management of the securities. This means that at least $300,000-400,000 was transferred to accounts of the Defense Ministry annually. Where is this money? Which officials of the Defense Ministry, government or their relatives were members of the Executive Board in this bank between 1995 and 2000 and received the dividends? Who, besides Oleinik, assisted in the frauds in the Defense Ministry? Answers to these questions are not available to the public yet.
Meanwhile, sources in the Kremlin stated that disclosure of financial frauds in the Defense Ministry was reported to the President in 2000. The President instructed the law enforcement agencies to punish the criminals severely. According to the military, Sergei Ivanov helped auditors of the Chamber of Public Accounts “comprehensively” check financial affairs of the Defense Ministry “to the maximum extent, objectively.” However, only one scapegoat has been found so far. Probably it is not beneficial for some officials to tell the whole truth to society. At any rate, there is a hope that the new officials of the Main Military Prosecutor’s Office, that is currently investigating into the case of the OVZs lost by the Defense Ministry, will make more profound conclusions than the Chamber of Public Accounts has attempted to do.