Putin's dilemma: loyalty or honesty?

The case of Pavel Borodin, the former top aide to Boris Yeltsin accused by Swiss police of laundering $30 million in bribes, could confront President Vladimir Putin with a difficult choice: protect his former political godfather or keep his pledge to clean up a decade-old system of Kremlin power abuse.

Mr. Borodin, who headed the Kremlin's shadowy Property Department for seven years, returned to Moscow last week after the Russian government posted his $3 million bail amid signs the Swiss case against him might be collapsing. But though Borodin has been linked to a blizzard of corruption charges stemming from the Yeltsin years, his more destructive legacy is a continuing system of Kremlin patronage that keeps Russia's Supreme Court judges, parliamentary deputies, and top government officials in a state of abject dependence, say experts. "If Putin does not deal with this, there will be no democratic reform in Russia," says Yury Skuratov, the former Russian prosecutor who opened the case against Borodin in 1999.

The Property Department, which Borodin headed, was an empire of former Communist Party and Soviet government holdings that included more than 200 state-owned businesses with 100,000 employees and assets worth an estimated $650 billion, or roughly twice Russia's gross domestic product.

Borodin told an interviewer in 1998 that his department had an annual income of at least $2.5 billion. The figures cannot be checked, since the accounts have never been published, nor are they included in the state budgets regularly submitted to parliament. "The scale of operations that Borodin oversaw was huge, and the cash flows were unaccountable, and that looks like an irresistible invitation to corruption," says Alexander Konovalov, an analyst with the independent Institute of Strategic Assessments in Moscow. "No one really knows what went on there, and to this day it is off limits to investigation."

In effect, Borodin was quartermaster and chief steward to the entire Russian government. Any Duma deputy, judge or government official who wanted a state-provided flat, the use of a car, country dacha, a subsidized vacation, medical treatment or even a new suit, had to appeal to the Property Department. Through Borodin, "the Kremlin could manipulate and influence the entire state apparatus."

In 1996 Borodin invited an obscure official named Vladimir Putin, who had just lost his job as vice mayor of St. Petersburg, to come and work in the Kremlin as his deputy. "Borodin was more than just Putin's first boss in the Kremlin, he was something like his mentor," says Georgy Bovt, deputy editor of the pro-government daily Izvestia. "That's one reason why Borodin's legal troubles in the past few months have presented Putin with a serious political crisis."

Among Borodin's projects were the renovation of the Kremlin Palace's ornate St. George's Hall and a re-fit of President Yeltsin's personal airplane. In connection with these and other jobs, he awarded six contracts during the 1990s, worth at least $500 million, to two Swiss firms called Mabetex and Mercata Trading. This was to lead him, eventually, to spend time in American and Swiss prisons.

In the wake of Russia's 1998 financial crash, a politically weakened President Yeltsin was forced by parliament to appoint a tough and independent former spymaster, Yevgeny Primakov, as prime minister. Mr. Primakov ordered Skuratov to aggressively investigate corruption in the Kremlin. Skuratov says he began seven major investigations of corruption, all involving Borodin. "Only some details from three of these cases have ever been made public," Skuratov says. "The Kremlin has never been cleaned. This is the main task faced by Putin now. If he fails, nothing will change in Russia."

The best-known case Skuratov looked into during the few months he was permitted to operate freely was the matter of vastly inflated Kremlin repair bills. Working closely with then-Swiss prosecutor general Carla del Ponti, Skuratov told journalists in mid-1999 he had found evidence that Mabetex had paid millions of dollars in kickbacks to several top Kremlin officials, and at least one of the Swiss bank accounts the money had passed through was in the name of Pavel Borodin.

The Kremlin reacted to the allegations by trying to sack Skuratov, using a now-famous videotape showing someone who looked like the prosecutor frolicking with prostitutes.

In May 1999, Yeltsin fired Prime Minister Primakov, after which Skuratov was never allowed to return to work. The Russian investigation into the Mabetex affair was closed down, but Swiss prosecutors continued the probe and issued a warrant for Borodin's arrest last summer.

Yeltsin resigned on the last day of 1999, handing the Kremlin keys to Putin in return for a sweeping immunity deal.

Perhaps seeking to distance himself from all the Yeltsin-era corruption talk, Putin removed Borodin from the Kremlin Property Department in January 2000, and gave him the leadership of the Russia-Belarus Union - a prestigious, if largely ceremonial job. Borodin seemed so sure of his high-level protection that he travelled to New York - and was promptly arrested on the outstanding Swiss warrant.

But the Swiss case appears weak, largely because Russia's new prosecutors have refused to cooperate.

Borodin was released on bail last week, and returned to Moscow. "Borodin is a hero for Russia's elite, because he stood up to the Americans and the Swiss," says Alexei Zudin, an analyst with the independent Center for Political Technologies in Moscow. "But he is also a problem, because of all he knows and all he symbolizes. Russia has to cleanse itself of all that, but how to do that if we don't deal with Borodin?"

That won't happen until the functions of the Kremlin Property Department are eliminated, says Skuratov, who now heads the 21st Century Legal Technologies Fund, a Moscow law consultancy that lobbies for judicial reform.

He says that "as long as judges depend on the Kremlin for their jobs and every little perk, reform will remain an illusion."

The fact that only the Swiss are investigating Russian corruption these days proves Borodin's system is still in place, Skuratov says. "Our law-enforcement bodies will not do anything until the day they are truly independent."

(c) Copyright 2001. The Christian Science Monitor