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Putin Dismisses Defense Minister Amid Corruption Probe

November 06, 2012

Putin Fires Defense Minister After Corruption Investigation

Russian Defence Minister Anatoly Serdyukov is the second Cabinet member dismissed in less than one month. Photographer: Manan Vatsyayana/AFP/Getty Images

President Vladimir Putin fired Anatoly Serdyukov as defense minister after a probe into an alleged $95 million fraud at the ministry, the most senior official to be ousted over corruption by the Russian leader.

Moscow Region Governor Sergei Shoigu was named as Serdyukov’s replacement, Putin said in a meeting broadcast on state television today. Shoigu, 57, an army general, served as Russia’s emergency minister since 1991 before being appointed governor this year.

Shoigu, who helped Putin found the United Russia party in 2001, takes over as the government plans its biggest defense revamp since the Cold War, with designs to spend 23 trillion rubles ($729 billion) this decade. Serdyukov was unpopular in the military because he reduced headcount and overhauled procurement, according to Ruslan Pukhov, head of the Center for Analysis of Strategies and Technologies in Moscow.

“The reforms aren’t completed,” Pukhov said by phone today. “He had tried to create an effective military machine.”

Serdyukov, 50, who became the first Russian defense minister with no military or intelligence background in 2007, previously ran a furniture company in St. Petersburg, where Putin was deputy mayor in the 1990s. He “was a victim of political intrigue,” Pukhov said.

Corruption Crackdown

Still, his dismissal is a “good sign” as it shows the Kremlin is capable of cracking down on corruption and may have an effect on other government officials, said Boris Makarenko, deputy director of the Moscow-based Center for Political Technologies.

Russia ranks alongside Nigeria at 143rd of 182 countries in Berlin-based Transparency International’s 2011 Corruption Perceptions Index, making it the most corrupt member of the Group of 20 group of advanced economies.

The move “may mean a more intensive anti-corruption campaign,” Julia Tsepliaeva, head of research at BNP Paribas SA (BNP) in Moscow, said in an e-mailed note. “We expect further investigation in the Defense Ministry and more attentive study of the military budget.”

Serdyukov is the second Cabinet member replaced in less than one month. Oleg Govorun was fired as regional development minister Oct. 17.

The former defense chief, who reduced military personnel by 300,000 to about a million and cut the officer corps by almost 40 percent, set the goal of increasing seven-fold the ratio of “state-of-the-art” equipment in Russia’s arsenal by 2020, including by buying foreign weapons.

‘Dynamic Development’

Then-President Dmitry Medvedev called for an overhaul of the armed forces and their communications systems after the five-day war with U.S.-ally Georgia in August 2008. He fired military-spending critic Alexei Kudrin as finance minister in 2011.

“The country needs a person who can pursue what has been achieved in recent years and ensure the dynamic development of the country’s armed forces, fulfil state orders and the ambitious plans to modernize the weaponry of the army and fleet,” Putin told Shoigu.

Putin, 60, who returned to the Kremlin for his third term in May, and Medvedev, his prime minister, held consultations about candidates for the defense minister’s post over the past several days, said Natalya Timakova, Medvedev’s spokeswoman.

Serdyukov may face questioning as a witness in the criminal case, Kommersant reported Nov. 1. His dismissal will enable an “objective” investigation of the accusations, Putin told Shoigu today. Serdyukov didn’t immediately respond to a request for comment.

Alleged Fraud

The country’s Investigative Committee said Oct. 25 it was conducting searches of offices belonging to OAO Oboronservis, a contractor supplying goods and services to the military, according to the statement. The alleged fraud of 3 billion rubles involves real estate, the law-enforcement agency said.

Shoigu’s appointment as defense minister means elections will be held for the post of Moscow region governor in September next year, state news service RIA Novosti reported, citing the central electoral commission. An acting governor will be appointed, Putin said.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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