Defense Agency Raided in $95.5M Fraud Case

The St. Petersburg Times

Published: October 25, 2012 (Issue # 1732)

Soyuz Hotel Investigators suspect that Oboronservis sold the Soyuz hotel and an adjacent land plot at 1 1/2 times below the market rate.

MOSCOW — Investigators raided the office of a Defense Ministry agency Thursday in a $95.5 million fraud case that could send a signal that the Kremlin won't tolerate corruption in the armed forces as it significantly boosts defense spending.

Defense Minister Anatoly Serdyukov arrived at the Moscow office of Oboronservis, which manages public companies like Voentorg, Oboronstroi and Spetsremont on behalf of his ministry, after the Investigative Committee started the search for evidence in the case.

"Investigators are conducting a search and seizure operation at Oboronservis in a criminal case of property fraud," Investigative Committee spokesman Vladimir Markin said in a video published on the committee's website. "Preliminary findings suggest that the property fraud amounts to more than 3 billion rubles."

Five criminal cases have been opened into the fraudulent sale of real estate, land and shares owned by Oboronservis, the committee said in a statement. Under the scheme, it said, Defense Ministry officials chose prestigious Oboronservis properties, including in Moscow, spruced them up with state funds, and then sold them at below-market prices, often with money stolen from Oboronservis.

No suspects were identified except Yelena Vasilyeva, an aide to the defense minister who previously headed the ministry's property department.

Investigators said eight property transactions were under scrutiny, including the sale of the State Design Institute in central Moscow for 282 million rubles below its market value and the sale of the Soyuz hotel and an adjacent land plot at one and a half times less than the market rate.

Another three buildings in the city center and the land under them were sold for about 700 million rubles, or at least 200 million rubles less than they were worth, they said.

Corruption is believed to run deep in the Defense Ministry, causing defense analysts and other observers to warn that the government must take measures to ensure that the $770 billion that President Vladimir Putin plans to spend on the armed forces over the next decade is spent properly.