His closest colleague in the first two years is Vladimir Usoltsev. During this time they know everything about each other. The two men share an office and even a desk in the attic of the KGB building in Angelikastraße 4. The office is sometimes too hot or too cold.
Putin spends most of his working hours there; he writes reports and sends them to KGB headquarters. He also looks for people who would be willing to become agents and spy for him in non-socialist countries; people who would risk years in jail if they are caught.
Putin focusses on people with a special affinity for the Soviet Union, academics, business people and tourists, even right-wing extremists and criminals. According to a former agent, the pay was very modest -- he only once received 30 East German Marks as a meal allowance.
At his command, Putin has an investigation team from the notorious K1 division of the East German police. The team is officially responsible for investigating political crime in the GDR, but some units within K1 secretly work for the KGB, including the troop in Dresden that is assigned to Putin. This is confirmed by two of Putin’s former colleagues in conversations with CORRECT!V and in Stasi files that we reviewed. For example in a letter, Putin asked the district Stasi office in Dresden to help restore telephone service for one of his agents whose phone service was cut off after he left the police force.
Everything the policemen write goes straight into Putin’s briefcase. The team at police headquarters is not allowed to keep an archive and does not retain copies of the documents given to Putin, says one of Putin’s agents.
Putin’s right hand man is Georg S. He is a daredevil and a roughneck; strong, ruthless and loyal. Putin’s kind of guy. We will hear more about Georg S.
Working in the GDR might seem a little boring for an agent like Putin -- but then again, it is also very easy. People like him have access to the infrastructure of an entire state. There is no “nyet” for a KGB officer in the GDR. It is also helpful that many citizens of the GDR have direct contact with people in the West. The GDR is a honey pot for information and contacts. And Putin makes use of this. Among other things, he recruits a number of Stasi agents for the KGB.
One of them is Klaus Zuchold. When they meet, Zuchold is under training by the Stasi as a foreign spy handler.
Mr. Zuchold is a key witness for this story. CORRECT!V reporters conducted numerous interviews with the former Stasi officer over a long period of time. Zuchold is one of the few witnesses who is willing to speak openly about his cooperation with Putin. He was in regular contact with the KGB officer during Putin's entire tenure in Dresden. As is to be expected with double agents, one can question the veracity of Zuchold's statements. CORRECT!V is aware of this weakness, but after factchecking Mr. Zuchold's statements in documents and in interviews with other witnesses, we found his statements to be convincing. CORRECT!V believes it is important to extensively document Mr. Zuchold's unique testimony here.
Zuchold is a person who can easily be persuaded. According to Zuchold’s Stasi file, he was under investigation on suspicion of working for the West German spy service BND. That is a terrible allegation against a spy that could lead to a prison sentence -- or to a bullet in the head.
But not with Zuchold. He is only transferred to a different unit, and later Putin personally pushes through Zuchold’s recruitment in Moscow. This is what Zuchold himself tells us. Even though the people in Moscow must be aware of the Stasi file which accuses him of being a double agent.
A possible explanation: the accusation is only a pretext for the Stasi to secretly investigate KGB agents -- including Putin’s network.
The recruitment begins at a Dresden police party. A man he has never seen sits down next to him and raises his glass with the words “Prost Aufklärung” (cheers espionage).
Zuchold is shocked. The term espionage is secret, only meant for internal use. No uninitiated person can know that Zuchold works for the Stasi in foreign espionage, definitely not someone in the police force. And if somebody does know, they are not allowed to say it, especially not over a beer. That’s the rule.
The officer who voices this code word is Georg S. from the political police K1; he works for Putin. With the word, Georg S. also blows his own cover, showing that he too is a spy. Another no go among secret agents. And so begins Putin’s recruitment of Zuchold -- with a transgression.
Zuchold already knows who Putin is. In an interview with CORRECT!V, Zuchold says he first met Putin in the Jägerpark in September 1985 at a Stasi phys-ed soccer game, early in the morning at 7 a.m. For Zuchold the exercise is mandantory, while Putin is there for the fun. Putin immediately stands out due to his speed and technical skill. He scores goals for his team. Because Putin hardly spoke German at the time, they speak in Russian.
After the agents’ toast, Georg S. shifts Zuchold from the Stasi to the KGB. The Stasi is not happy about the recruitment. Putin and his colleagues keep rummaging around in the staff and resources of the GDR spy service. Stasi officials soon figure out that Zuchold works for the KGB, so they put him out to pasture. They move him from the section for foreign intelligence to the less prestigious section for observation. He no longer receives any important information.
Privately, the two men get along well. Zuchold invites Putin to his weekend house outside of Dresden. The house is near a Soviet army barracks. Zuchold jokingly calls the soldiers “my harvesters” – because they steal apples from his garden. This joke is right up Putin’s line. From then on Putin asks Zuchold every time he sees him: how are your harvesters doing? He looks down on the Soviet soldiers. He despises them. They failed in Afghanistan. They brought shame to his country. If there is one thing that Putin can’t stand, then it is weakness, says a friend of Putin’s.
CORRECT!V has asked the Russian presidential office to comment on the information about Putin’s time in Dresden. We did not receive a response. Should we receive comment at a later date, we will update this story.
Blowing Zuchold’s cover at a party through a toast -- that is no joke. But this behavior is typical for Georg S. He is notorious for not following rules. He does what he wants. He thinks he stands above everything else, says Zuchold. Again and again, he would ignore regulations and talk openly. In the Stasi he would have been fired for being careless and endangering others. But this reckless daredevil is Putin’s most important agent.
Georg S. is dominant and charismatic; he has close-cropped hair, sees himself as top dog and is a passionate hunter who rents his own hunting grounds. He proudly told Zuchold that his father was also a KGB agent who died under mysterious circumstances.
Georg S. is also known for his escapades with women. He is said to have had affairs with his female agents and with the wives of his male agents. At a party organized by one of his agents, Georg S. allegedly rapes the agent’s ten-year-old daughter and a friend of hers. The father and brother of the victim confirm the rapes to CORRECT!V. The crime is never reported.
Putin is impressed by Georg S. He is strong – and despite his escapades, unconditionally loyal. Two things Putin values highly. Even then, Putin is willing to excuse anything as long as the person stays true to him, says Zuchold. Accordingly, Putin gives Georg S. a full set of hunting gear along with a saber for his 40th birthday.
On the other hand, Georg S. feels superior to Putin. Again and again, he boasts to Zuchold that they will make a proper Chekist (Russian spy) of Putin. Georg S. speaks openly with Zuchold on vacations and at parties.[... letter ...] Dresden 07Oct1988 birthday greetings to Putin from Böhm
And so we also know about this episode:
Putin wants to obtain information from a professor of medicine by any means. The professor has access to highly sensitive information: a study on deadly poisons that leave hardly any trace – a comprehensive guide for silent killing. The methods range from fake suicide to the use of radioactive materials. Even arsenic poisoning transmitted via a penis during sexual intercourse is discussed in the study.
Putin is highly interested in the study, says Zuchold. And to get it he has different options for winning cooperation: idealism, money or blackmail. To get to the professor, Putin appears to choose “kompromat” -- the planting of compromising material.
According to Zuchold in an interview with CORRECT!V, Georg S. orders him to obtain pornographic material from the Stasi archives. This is to be planted on the professor to blackmail him. Georg S. is merely following orders -- the command for this operation could only have come from Putin.
We found the professor from Dresden and asked him if he was blackmailed with pornographic material. He denies the episode.
But in 1993, police investigators found the pornographic material in Georg S.’s bedroom during a raid -- it is the same material that was used to blackmail the professor, according to Zuchold who says he was shown the search inventory list. A spokesperson for the police says in response to an inquiry that the files from this case are no longer present.
One of Putin’s most interesting operations is his handling Rainer Sonntag as a KGB agent. Sonntag was a notorious neo-Nazi known throughout East and West Germany. The neo-Nazi and small-time criminal is recruited by Georg S. in the 1980s; this makes Putin responsible for overseeing control of Sonntag. Since Putin is tasked with finding agent multipliers, it is Sonntag’s job to expand the agent network with people he knows such as members of the neo-Nazi movement.
In 1987, Sonntag is deported to West Germany and makes a career as a close confidante to the neo-Nazi leader Michael Kühnen. An agent subordinate to Putin could only be deported with his permission. Sonntag is now an “agent in the field of operations”, meaning a spy in West Germany. He maintains contact to Georg S. and via him to Putin.
After the fall of the Berlin Wall Sonntag returns to East Germany, according to Zuchold. At the border crossing by Hirschberg, Sonntag asks to be picked up by his control-officer Georg S. Back in Dresden, Sonntag helps organize the East German neo-Nazi scene. His return helps the far-right movement in Dresden quickly gain traction.
Sonntag becomes the head of a vigilante group. Together with skinheads in combat boots, he terrorizes street scammers and small-scale criminals. And he blackmails the flourishing brothel business.
Files at the Saxony state police do not shed light on the neo-Nazi Sonntag’s alleged KGB affiliation nor on the full role of Georg S. But since the state police was only founded after reunification, the files could be in another department, says a speaker for the Saxony state police in response to an inquiry. By the editorial deadline, this search remained fruitless.
Sonntag is shot dead in the summer of 1991. His enemies in the brothel business are not the only ones to breathe a sigh of relief. Also Georg S. He later tells Zuchold that Sonntag’s death was best for everyone.
In 1989, the GDR falls apart. The Soviet Union implodes. And Putin’s work in Germany ends with a failure. We know this from Werner Grossmann, the last head of the GDR foreign espionage service, part of the Stasi. Grossmann warns his colleagues at the KGB that Putin is recruiting GDR agents who have already had their covers blown, creating a high risk for the KGB.
Putin is then suddenly called back from Dresden in February 1990.
Putin is worried about his future. He confides in his colleague Usoltsev, saying that he is afraid he will have to go back to Leningrad, which will soon be called St. Petersburg, and get by as a taxi driver. But he has no reason to be worried. Putin’s KGB contacts prove to be a springboard for an unprecedented career.
And Zuchold changes sides once again. On 26th December 1990, he goes to the West German intelligence service and spills the beans on Putin’s network. The agency refused to confirm the meeting with Zuchold. According to a spokesperson, the agency does not provide information about its contacts or its operations.
Today, Zuchold works for a security company.
After German reunification, Georg S. cannot break with his past. His time of glory is over. He is arrested in on 23rd April 1993. The authorities search his home. They come across the pornographic blackmail material without realizing its significance. It is just listed in the search inventory.
But then something unexpected happens: Georg S. is never charged with espionage. To this day, it is unclear why.
Georg S. never talks to the press. He gets by as a private investigator in Dresden. Sometimes he has a lot of cash, says Zuchold.
In 1999, the year when Putin is named the Russian Prime Minister, Georg S. is brutally beaten on his head with an iron rod in his apartment. Georg S. let the perpetrators inside. He is found unconscious three days later. After that, Georg S. is a wreck. He can no longer concentrate. In conversation, he randomly starts to giggle or cry. He falls into alcoholism and welfare.
One day, Zuchold visits S. in Dresden. Zuchold says they are burned-out birds that nobody needs anymore. Georg S. disagrees. He is still needed. Zuchold tries to convince Georg S. to move to Moscow. He tells S. that he lives on welfare in Germany, while Russia would take care of him thanks to Putin and the old connections. But when Zuchold buys Georg S. a train ticket to Moscow, S. never takes the trip. Georg S. seems to be afraid of travelling to Putin’s country. Later Zuchold suspects that after his arrest, Georg S. might have informed German investigators about Putin’s role in Dresden.
In his last years, Georg S. spends most of his time drinking beer in an Irish pub in Dresden, says Zuchold. Georg S. dies in 2010 at the age of 62. At the funeral, Putin’s former agents meet for the last time. Silently they stand by the open grave. Their former boss does not show up.
Putin was married to Lyudmila from 1983 to 2014. The time in Dresden is formative for Lyudmila, since then she has had a special liking for all things German. Back in Moscow, she keeps in contact with her German girlfriends. She sends her daughters to the German school in Moscow. She has fond memories of her time in Dresden.
Memories of her marriage to Putin are less fond. He treats her with disrespect, she complains to one of her pen pals.
Once when Zuchold visits Putin at his home, Putin introduces his wife to the Stasi officer with the following words: she is like a Russian cake -- you put lots of sugar into it and it rises. When the men start talking about work, Putin sends his wife to the kitchen because she is not allowed to participate in serious conversations. We asked Putin and his former wife Lyudmila Putina for comment via the Russian Presidential Office. Neither of them have responded.
In the late 1990s, Lyudmila uses the offices and fax machine of the head of the Dresdner Bank in Russia. She uses the fax to keep in contact with her girlfriends. The head of Dresdner Bank in Russia is Matthias Warnig, an old acquaintance of Putin’s. One of his colleagues says Warnig worked as an agent recruiter for the East German Ministry for State Security. In response to an inquiry by CORRECT!V, Warnig’s office responds that he is “not aware” of Ms. Putina having used his fax machine. In response to the question whether he is an “old acquaintance” of Putin’s, his office writes: “We cannot qualify the term ‘old acquaintance’.” Warnig denies that he recruited agents for the Stasi.
Today, Warnig works for Nord-Stream, the company that operates the Baltic See pipeline from Russia to Germany. Former German Chancellor Gerhard Schröder (Social Democratic Party Germany) sits on the supervisory board of the same company.
In 1994, Lyudmila Putina has a car crash in St. Petersburg and is badly injured. The Dresdner Bank finances her transportation to Germany and her treatment in a special clinic in Bad Homburg. Bernhard Walter, the former board spokesman for the bank, later says in an interview that he took on Ms. Putina’s costs for “humanitarian reasons”. Because the hospitals in St. Petersburg could not have treated these types of injuries at the time.
During his 2000 presidential campaign, Putin makes no mention of this humanitarian act. He merely says that his wife was treated in a military hospital in St. Petersburg.
The Dresdner Bank allegedly showed Putin its gratitude and paid for some of his trips to Germany. Through a spokesman, Warnig says he has no knowledge of such payments.
People sugarcoat their past; that is not unusual. But Putin goes unusually far. In his official autobiography “First Person”, Putin says that his family was on vacation at the Russian Baltic Sea in 1998 when he learned he has been named as head of the intelligence service FSB.
In reality, Putin and his family spent their vacation in the south of France. This is documented in letters from Lyudmila Putina that CORRECT!V has reviewed. According to a letter Lyudmila writes to a friend, Putin himself commutes between Moscow and southern France for important meetings in July 1998. In August they planned to continue their vacation in Switzerland, in the swank town of Davos. But as a result of Putin’s promotion to head of the domestic intelligence service, FSB, they have to go back to Moscow.
They already know Davos. “We have spent two vacations here with the Shamalov family, six weeks altogether”, writes Lyudmila Putina to her friend in early 1997 from Davos, the Swiss ski resort. The letters were sent via fax. Niklai Shamalov is a wealthy businessman from St. Petersburg with a close relationship to Putin. Lyudmila tells her friend that Putin had done a lot for the Shamalov family, and now they had to do something for Putin. Shamalov and Putin have not responded to inquiries regarding their mutual business relationship.
Meanwhile, Putin rises up to become the most powerful man in Russia while his father is diagnosed with acute cancer. Lyudmila Putina describes the suffering in a letter to a friend in July 1998:
“His father has already been in the hospital for a month, he has cancer, stage VI. The doctors that treated him before missed the onset of the illness, because he always had back pains, and they prescribed him massages, injections, but that was already cancer and metastases! in the spine.”
The doctors do not recognize the cancer. The hospitals in St. Petersburg lack modern medical equipment. As deputy mayor, Putin was also responsible for foreign investments into the city’s health care sector. But there is corruption. A doctor writes that the hospital management turned down cheaper but fully functional used equipment and bought much more expensive new equipment to rake in the customary bribes, according to the email reviewed by CORRECT!V.
Limited reserves are wasted. In the end, the man whose son helped build this system fell victim to it.
Even large stories sometimes begin unspectacularly. This one starts in 2007, in the small town of Delitzsch in the East German State of Saxony, where tax officials investigate a computer dealer -- Ralf K., a member of the Christian Democratic Party and a representative in the Northern Saxony district assembly.
Before long, the officials come across suspicious dealings relating to 21 million Euros that had been written off, but do not fit into the small business’s regular dealings. The computer salesman had accounted for contracts worth millions of Euros in Russia even though his company has neither the staff nor the means for such deals.
Something is wrong. The public prosecutor’s office is called in, along with INES, the “Saxony Integrated Investigation Unit” which is specialized in complex corruption cases. The police rummage through piles of documents, finding ever more connections, accounts and abysses. As if they were peeling an onion. Before long, the suspected tax evasion of a small business owner in Delitzsch turns into a alleged corruption case that leads to the top of the Russian state.
The source of the money is soon uncovered: the American computer giant Hewlett-Packard (HP). Prosecutors allege that Ralf K. established a slush fund in early 2004 in cooperation with HP. First, a German subsidiary of Hewlett-Packard delivered computers and software for around 11 million Euros to Ralf K. And then Ralf K., according to state investigators, sold the same goods back to HP for around 21 million Euros. The profit, after provisions and expenses: around 9.3 million Euros.[... image ...] The Deal: At least 7.6 million Euros were to be paid out
Dirty money that Ralf K. later distributed to accounts around the world, prosecutors allege.
But Ralf K. is only a small helper, one cog in a larger game. He does not receive orders from HP, but from the Russian Sergej B, according to state prosecutors. He has been friends with Ralf K. since the early 1990s when Sergej B. did an internship in Saxony. After that, the Russian and the German established companies with almost identical names and did business together across the former Soviet empire.
The investigators can also determine the recipients of the dirty money -- primarily employees of the Russian intelligence service and the Prosecutor General's Office. Deputy Prosecutor General Yuri Biryukov, a small man as hard as steel with an unpleasant rasping voice, signs the documents that set the bribery in motion, some of which are fraudulent.
Biryukov is a very important figure in Putin’s power structure. One example: in 2003, when the oil company Yukos is broken up and its boss, the oligarch Mikail Chodorkovsky, is sent to a prison camp, the person to sign the arrest warrant is the same Yuri Biryukov.
From 2004, say investigators, the bribes negotiated by Biryukov go via front companies to employees of the Prosecutor General’s Office and the intelligence service -- which is no longer called KGB, but now FSB.
What does all this mean?
We were also puzzled by this question for a long time.
Is the HP bribery case -- which could bring the State of Saxony hundreds of millions of Euros in compensation payments -- merely another corruption scandal in a quintessentially corrupt country?
Or is there more behind all this?
Yes, there is.
We discover the real significance of the case when we go back to the year 1999. It is a fateful year for Russia. In this year, Putin stages a sex scandal, incites a war, breaks the independence of the Russian public prosecution, rises to the Russian presidency -- and enables bribery dealings with HP.
One thing at a time.
At the beginning of the year 1999, Russia is still a state governed by something resembling the rule of law, despite corruption and arbitrary power. A separation of powers is in place; independent representatives raise their voices in the parliament, the Duma, and parts of the judiciary work independently. The president’s name is Boris Yeltsin. But he faces difficulties. The Prosecutor General of the Russian Federation is investigating Yeltsin and his relatives. Undeclared assets belonging to the family that have turned up in Switzerland were used to purchase luxury goods. The Prosecutor General is called Yuri Skuratov, and he even dares to investigate the president.
Boris Yeltsin is in big trouble. But he receives help from Vladimir Putin. A year earlier, when the investigation of Yeltsin had only just begun, he made Putin head of the domestic intelligence service FSB, the successor to the KGB.
The pressure against Prosecutor General Skuratov is immense. But he continues the investigation. Until 18th March 1999. That day, Russian television broadcasts a film showing a man resembling the Prosecutor General in bed with two women.
Looking at the grainy black-and-white video today, the suspicion immediately arises that it is a blatant falsification -- the participants behave as in a pornographic film, taking into careful account where the camera is. And Prosecutor General Skuratov swears he is not the man in the film.
But the denial does not save him. Because now the spy service chief Putin says in a televised interview: his experts have determined that the naked man in the sex tape is Prosecutor General Skuratov. The word of Putin, head of the spy service, is stronger -- the same Putin who, when he was a department head for the KGB in Dresden, wanted to blackmail a professor with pornographic material to get access to research results. CORRECT!V has confronted the Russian president with these accusations but has not received any answer.
With that, the Prosecutor General is finished.
Soon afterwards he is put on leave. His successor is already in place: Vladimir Ustinov, along with his deputy, Yuri Biryukov, the small tough man with an unpleasant rasping voice. The two men know each other from the northern Caucasus, from the chaotic years after the First Chechen War.
The investigation of Boris Yeltsin is subsequently put on ice. And the president’s gratitude soon pays off: on 9th August 1999, he appoints Putin as Prime Minister, the second man in power.
Putin’s time in office begins with death and terror. Every week apartment buildings are bombed, almost 300 people die. On 22nd September 1999, residents observe a number of men carrying sacks into the basement of an apartment building in the town of Rjasan. The police come and confiscate the sacks -- which contain explosives, as a demolition expert discovers. The men, it turns out, are agents of the spy service FSB.
But the heads of the intelligence service declare several days later that the sacks were filled with sugar, and that the operation in Rjasan was an exercise to test local people’s vigilance.
The Russian public still sees the apartment building terror as the work of Chechen terrorists. The Russian army had lost the first act of the war against Chechnya; it had withdrawn in 1996. Putin always saw this defeat as a disgrace; he wants to annihilate them. Now he has a pretext. On 1st October 1999, Russian troops march into Chechnya. Luckily, the new Prosecutor General closes the investigation of the ominous sugar sack carriers several months later.
The judiciary is now in Putin’s hands. It will no longer give him trouble.
Between all these events, a different decision has gone without notice. On 14th November 1999, Putin decides to do something nice for the Prosecutor General’s Office. In a government decree, he allows the authorities to borrow 30 million Dollars from a foreign bank to buy a new computer network.[... document ...] Decree 14Nov1999 No. 1881-p signed by V. Putin
A strange decision. Russia is almost bankrupt after the Ruble crisis. Hospitals are falling apart. Why take on foreign credit now for the Prosecutor General’s Office? Such deals invite corruption. Putin also knows this. Does he deliberately approve it so that the new Prosecutor Generals can fill their pockets -- and he can secure their loyalty to him?
The contract is put up for bids. Hewlett-Packard is one of the companies to make an offer -- and receives the contract in February 2001. The deal is supposed to be secured with an American export guarantee. But that does not work out.
And so the Russian Prosecutor General’s Office suggests doing the deal through Germany -- with Hewlett-Packard ISE GmbH in the Bavarian town of Dornach. Now it all goes quickly: in February 2003 the Russian authorities approve the deal, in November the German HP subsidiary applies for a loan from Dresdner Bank, in March 2004 the German Ministry of Economics and Labor gives the deal its blessing, and then the German HP subsidiary receives an export guarantee from Euler Hermes. That means that HP shifts its risk in the deal to the German taxpayer.[... image ...] Germany lends a hand: A German state guarantee was a prerequisite for the deal
At this point, the bribes have already been arranged -- they are hidden in the documents which both the Economics Ministry and auditors at Euler Hermes reviewed. But the German authorities do a sloppy job. They do not apply the same scrutiny as tax officials in the State of Saxony would later do. Accordingly, the bribery deal receives an official German blessing. A spokeswoman of the Economy Ministry says the ministry can not comment on specific transactions due to business confidentiality. But the ministry says that in principle the German government is relieved from its liability if a transaction has been concluded with the help of corruption. Euler Hermes did not offer any further comment.
Around 7.6 million Euros, one fifth of the entire sum, is designated as dirty money from the outset. This was promised by the HP representative in Russia -- the German Hilmar L.
Hilmar L., who is now 63 years old, is well versed in dubious agreements. He is an astrophysicist who studied in the Soviet Union and later worked at the Central Institute for Astrophysics in Babelsberg. But he is also an informant for the Stasi, the East German secret police. Between 1980 and 1990, he goes to great efforts to spy on his colleagues.
He handles the political changes in Germany well and starts a career in IT in the early 1990s. In 1996, he becomes a manager for HP in Russia. At a business inauguration in 1999, Hilmar L. meets President Putin. The former Stasi informant meets the former KGB agent from Saxony. Did he approach Putin as a “colleague”? Or did Putin, whose spy service has access to countless Stasi documents, know about Hilmar L.’s former double life? Might this be why HP was awarded the crooked deal?
We do not know. Only one thing is for sure: according to German investigators, HP did not make the cheapest offer. Yet it still received the contract to provide the Russian Prosecutor General’s Office with a computer network.[... image ...] The bribes flow from Germany to tax havens
At this point, Sergej B. comes into the picture -- the Russian computer dealer who is friends with the Saxon Christian Democrat Ralf K. Somebody has to move the dirty money from HP to the corrupt Russian officials. An HP employee suggested Sergej B., now he gets to work with Ralf K., according to prosecutors. In early 2004 they have filled up the slush fund, then they start distributing the money.
Around 2.6 million Euros go to the London-based company Verwood Industries Limited -- with no service in return. Prosecutors allege that Ralf K. transfers around 310,000 Euros to Bracefield Builders Limited in the UK -- with nothing in return. A mysterious Marple Associated S.A. in Belize receives 632,000 Euros -- with nothing in return. And so on. Via ever more dummy firms in various tax havens, the money finally reaches the Russian apparatchiks.
Sergej B. also keeps the Russian intelligence service FSB in mind. Around 550,000 Euros go to an account in the Republic of Srbska. It belongs to a the Kotrax Group and the transfer takes place without any type of contract -- there is not even an effort to pretend that services were rendered, as in other cases. German authorities assume that Kotrax is a front for the FSB. According to credit card statements, the money was used to live it up. There are statements for luxury watches and swimming pool equipment, along with a bill from the Hotel Palace Berlin for 108,000 Euros, paid for by the Kotrax Group. The “Presidential Suite“ there costs 1800 Euros per night. In a statement, a hotel representative said that the hotel was not aware of this incident and that she did not have information about such a bill.
The way he presents himself, Sergej B. is an exemplary internet entrepreneur with a charitable heart. By his own account, his companies have 5000 employees. Sergej B. immediately comes to mind in discussions on e-government in Russia. His employees are diligently tasked with digitalizing files from ministries, libraries, company archives and numerous other data collections.[... image ...] Credit Cards: The bribes often end up with Russian officials through the use of credit cards
What Russia’s public does not know: Sergej B. leads a double life. He not only moves around dirty money for the FSB. The German case files also reveal that he is an FSB agent himself.
This puts his engagement in digitalizing data collections in a completely new light. A secret agent with access to all files in Russia? The dream of any spy.
It gets even better. When all is done and dusted and every corrupt bill has been paid, there is still money left over -- around 1 million Euros are left in the slush fund. Sergej B. directs his good friend Ralf K. to order display cabinets and safety glass -- for renovating the Zarizyno Museum which is being restored by the city of Moscow.
Ralf K. does as told, according to the investigation by Dresden prosecutors. He transfers 945,371 Euros to the company Knauf/Kassel in Fuldabrück for display cabinets and 106,850 to the company Hanseata in Wentdorf for safety glas. Both companies deliver the goods to Moscow in 2007.
But when asked today, the Moscow office of the leading architect who chose the display cabinets states they were financed by the city.
We could not reconstruct this flow of money. But it reeks of money laundering. The display cabinets were verifiably bought with money from Ralf K.’s slush fund. Did the “clean” money from the city of Moscow then go to Sergej B.? And if it did, where did it go from there?
Another oddity is that Sergej B., who usually enjoys speaking publicly about his business deals, does not mention the display cabinets on his website. There we only find the statement that his company digitalized the archives of the Zarizyno library. Display cabinets are not mentioned. Sergej B. declined to comment when asked by CORRECT!V. The museum and the city of Moscow did not answer questions.
The legend continues: under President Boris Yeltsin, Russia was corrupt. Then Vladimir Putin came in and cleaned everything up. But in fact, at least the separation of powers was still upheld under Yeltsin to a large extent. Only under Putin was the political system brought into line. Fraud became institutionalized.
A central pillar of Putin’s power is the cooperation between the Prosecutor General’s Office and the intelligence service. Members of the intelligence service do the dirty work; then the state attorneys ensure the intelligence officials do not have to account for their actions.
Again and again, we come across the Ustinov/Biryukov tandem, the two heads of the Prosecutor General’s Office.
Ustinov stops the investigation of the ominous “sugar sack carriers”. Biryukov hampers the investigation into the corruption scandal surrounding the furniture store “Three Whales”. Ustinov pushes through the law on “Confiscating Assets”, a carte blanche for the raids against business people. In the investigations of oligarchs, in the scandal surrounding the sinking of the submarine “Kursk” -- again and again, the two heads of the Prosecutor General’s Office save Putin’s skin.
And at the very beginning of this cooperation stands the loan to the Prosecutor General’s Office which Vladimir Putin approved. As if Putin wanted to reward these men -- who are immensely important in his power game -- for their loyalty early on.[... image ...] Luxury: The money was spent on luxury hotels, gems and expensive cars such as a Bentley
We asked the Russian data collector Sergej B., the former and present-day Russian President Vladimir Putin, the present-day senator Yuri Biryukov, the former Prosecutor General Ustinov, and the former head of the FSB Patruchev, the former head of Hewlett-Packard in Russia Hilmar L. to comment on these allegations.
They all prefer to remain silent. If they do make a statement at a later time -- we will update this story.
Ralf K., the former district assemblyman for the Christian Democrats, whose business was used to implement the HP transaction according to prosecutors in Dresden, also declined to answer questions. After receiving the questions from CORRECT!V, his lawyer Thomas Knierim immediately sent us a declaration to cease and desist all coverage on his client, also asking for a fee of 1086.23 Euros. We have not complied.
According to the view of German prosecutors, the Russian officials who were involved in the HP deal committed criminal offenses. The main culprit is the man with the rasping voice -- Yuri Biryukov. The case is known in Russia because the German authorities have requested legal assistance. But so far, none of the people involved have faced an investigation in Russia.
For Hewlett-Packard, the bribery deal was immensely profitable: it helped HP gain a kind of monopoly position on the Russian market. According to the business plan “Troika”, HP’s turnover in Russia was supposed to rise from 700 million in 2003 to 2 billion Dollars in 2007 -- with a profit margin of 42 percent. It appears that a 7.6 million Euro bribe brought HP billions in profits.
According to a criminal investigator, this was HP’s “golden ticket” to the Russian market.
HP declined to comment when CORRECT!V confronted the company with the accusations. Patrik Edlund, spokesman of HP Germany, declined comment citing ongoing legal proceedings in Germany. He added a press release from 2014, in which the company said that the number of employees concerned was small and that they were no longer with the company. A denial is something different.
The American judiciary has already taken action. In 2014, a US court convicted Hewlett-Packard to a fine of 108 million Dollars due to corruption and bribery payments in Russia, Poland and Mexico -- whereby the Russian deal was particularly serious.
Oddly enough, the US case is not directed against the company’s management. At the time, this included a woman with significant political connections: Carly Fiorina, who is now a presidential candidate in the US Republican Party. In her candidacy announcement, she underlined her success in running the computer company. What did Carly Fiorina know of the bribery payments in Russia under her leadership? She declined comment when approached by CORRECT!V.
The US judges drew on the German statement of claim which was initially examined by the District Court in Leipzig from 2012. After almost three years, the District Court recently handed over the files to the Leipzig State Court, and now the judges there have to decide whether or not to accept the case. Only then will the decision be made whether it will lead to a trial. But there are indications that the judges at the Leipzig State Court are now taking the case very seriously.
This delay is surprising. Because the German state has invested millions of Euros into investigating the case. And it could bring in immense sums of money. Public prosecutors in Dresden have announced that they also want to have the profits from Hewlett-Packard’s subsequent business dealings in Russia confiscated if the company is found guilty. This is possible in legal terms: after the Cologne waste scandal, the German Federal Court of Justice decided in 2005 that in cases of corruption, not only the deal where bribery was involved is relevant. All subsequent dealings can also be taken into account.
As stated: HP made billions in profits in Russia.
That means a conviction could lead to hundreds of millions of Euros in compensation. To be paid, among others, to the State of Saxony.
When the Russian General Prosecutor’s Office orders an overpriced computer system from the US company Hewlett-Packard in 2001, it needs to find a country that will secure the loan. In November 2003, the German HP subsidiary applies for a loan from the Dresdner Bank, and in March 2004 the German Economics Ministry gives the deal its blessing. This means that the German taxpayer carries part of the risk for the deal. Through their negligence, German officials also helped Hewlett-Packard transfer over seven million Euros in bribes to the Russian authorities -- giving HP a dominant position in the Russian market. According to court records this may have also damaged other western computer companies.
The HP documents were certainly formulated in a tricky manner. They were intentionally kept brief to conceal the funds intended for bribery. Russian Hewlett-Packard employees developed a special method of bookkeeping that would not raise suspicion in internal audits. Accordingly, a number of columns that were usually used in cost tables were omitted, including those for list price, the discount in Dollars and the discount in Euros.
Nevertheless, an internal auditor stumbled across the fraud. When a senior HP official asked why the columns were missing -- he was told that that at least 6.6 million would be moved to a slush fund for kickbacks, according to a meeting summary. The auditor then made a note of the amount on the margin of the document, according to the summary.
The German Ministry of Economics and Labor under Wolfgang Clement (Social Democratic Party Germany) did not apply the same scrutiny. And it failed to discover the fraud. On 12th March 2004, officials approved the export guarantee. One week later Hewlett-Packard Germany received the corresponding documents from Euler Hermes. A spokesperson for the Economics Ministry which is today led by Sigmar Gabriel (Social Democratic Party Germany) said: “Unfortunately, information cannot be provided regarding specific deals because this could violate trade and business secrets.” But in general terms, the federal government would not be liable if it were to become clear that a deal involved bribery. Euler Hermes also declined to comment about the case.
However, Euler Hermes employees could have raised alarm if they had diligently analyzed the documents.
This was left to tax officials in Saxony who uncovered the corruption scandal in 2007. They discovered the contradictions in the documents, some of which Euler Hermes employees had also reviewed.
There are further inconsistencies. Should the deal between Russia and HP even have been allowed to receive a German export guarantee? Not really. Because the deal did not preserve or create jobs in the EU, and there was no public interest in the case.
Beyond that: this deal may have even damaged German competitors. That is what the investigators in Saxony discovered. Prosecutors say the corruption hurt HP’s competitors because the deal prevented IT companies such as Siemens, IBM and Dell from engaging in business with the Russian authorities for many years. For this reason German prosecutors have petitioned in an indictment under review in a Leipzig court for the garnishment of Hewlett-Packard profits in Russia.
Elena Panfilova, the founder of Transparency International Russia, emphasizes that state guarantees should only be provided if a deal is 100 percent clean. “In countries where corruption is endemic, the authorities providing permits must check especially thoroughly and investigate two or three times whether there might be corruption,” she said in a telephone interview.
Unfortunately, the German authorities failed to do this.
“What we really have here is a state-sponsored system of extortion,” said Boris Titov, the Russian president’s business commissioner, in a Russian newspaper in 2011. Titov was appointed in the brief springtime under interim President Medvedev. He also mentioned another number: every year around 70,000 companies fall victim to “raids”.
In Russia, a “raid” denotes the forced takeover of a company, sometimes by masked men. The takeover is often justified with forged contracts. Or by fabricated criminal offenses. The rightful owners land in prison, and later corrupt justice officials recognize the forged contracts as authentic. The management of Hewlett-Packard was aware of the danger of raids. Records presented to the State Court in the German city of Leipzig detail bribe payments that were allegedly paid to Russian officials. The payments began in 2004 after the American computer giant signed a contract to deliver IT infrastructure for the Russian Prosecutor General’s Office. Court records show officials of the spy service and public prosecutors were also taken into account in order to prevent raids against HP partner firms. According to German investigators, HP managers arranged the payments because the firm’s partner companies in Russia were also targeted by the Russian spy service.
Only after HP paid bribes to the intelligence service could the companies feel halfway safe. In this sense, it was a kind of protection money. A press spokesman for HP declined comment in responce to questions from CORRECT!V about the case, citing the ongoing investigation. The State Court in Leipzig has yet decide whether it will allow the prosecution to bring the case to trial. In 2014, A US court convicted HP’s Russian subsidiary on corruption charges related to this business deal in Russia and sentenced the firm to a fine.
A different “raid” case is well known in Germany: the Bavarian businessman Franz Sedelmayer is one of the very few people who successfully defended himself against a “raid”. In the mid-1990s, Sedelmayer failed to pay protection money, and he lost his company in St. Petersburg.
Mr. Sedelmayer spent twenty years fighting in Swedish and German courts for compensation. For example, he showed up at a Berlin air show with a bailiff to have an Aeroflot airplane impounded. The Russian pilots took off early and prevented the plane from being seized. In the end, Mr. Sedelmayer had the building which once housed the former Soviet Union trade office in Cologne -- and a former KGB base -- auctioned off to his benefit. Sedelmayer received around 5 million Euros.
Foreign business people can at least leave Russia if they have to. But Russian business people risk facing complete destruction. Not only could they lose all their belongings. They also face being taken into custody. In prison, they have little protection against violent attacks.
Alarmed by the shocking figures, the Russian interim President Dmitry Medvedev tried reform. A law was passed in 2011 that prohibited pre-trial custody for people accused of economic crimes.
But little has improved since then. In an October 2014 study, Andreij Yakovlev from the Moscow Institute for Industry and Market Studies came to a sobering conclusion: it was not only junior officials who were thwarting efforts at reform. Above all, it was the leading officials in the state authorities who held on to the Soviet ideology of fighting any type of business activity. First and foremost the Prosecutor General's Office and the intelligence service FSB, the study found. CORRECT!V has asked the Russian Presidential Office, the FSB and the Russian Prosecutor General’s Office for comment on these allegations. As of publication, there was no response.
In August 2000, Russian customs officials discover that the import documents for 400 tons of Italian furniture are falsified. Both the weight and the value of the furniture are declared as much too low, say investigators. They estimate the damage to the Russian state at around seven million Euros.
In September 2000, the customs official Pavel Saitsev opens an investigation -- and hits a wasp’s nest. A security advisor to the furniture company has close connections to the Russian spy service, up into the direct vicinity of Nikolai Patruchev, a confidante to President Vladimir Putin.
One month later the man we know for his unpleasant rasping voice, First Deputy Prosecutor General Yuri Biryukov, halts the investigation. Prosecutors confiscate documents and intimidate the customs official. He recounts the events in a telephone interview with CORRECT!V. “I was threatened in the public prosecutor’s office. My safety and the safety of my family were at stake,” he said.
Biryukov accuses the customs official of abuse of authority. He says that Saitsev authorized searches and had suspects imprisoned without permission from the public prosecutor. And so Saitsev himself must face a judge.
Her name is Olga Kudeshkina. She wants to thoroughly investigate the allegations against Saitsev and will not be pushed to a decision. The judge later tells the European Court of Human Rights that Deputy Prosecutor General Biryukov intervened in the case at the Moscow City Court. The case is taken away from her. Later she is forced to leave her position. In 2009, the European Court of Human Rights grants the ousted judge compensation. A press officer at the Moscow City Court responded to an inquiry from CORRECT!V saying it was untrue that the court was pressured.
This doesn’t help the customs official Pavel Saitsev. Another judge convicts him, sentences him to a suspended prison sentence, and Saitsev loses his job.
These are the years in which President Putin is only beginning to consolidate his authoritarian rule. There are still some independent members of the Russian parliament, the Duma. Yuri Shchekochikhin, a member of parliament with the oppositional Jabloko Party, picks up the case. Shchekochikhin is a writer and journalist. Breaking a taboo, he wrote a book about organized crime in Soviet times, inciting discussion about the influence of criminal groups in Russia.
Shchekochikhin initiates an investigation into the scandal. He uncovers the connection between the Prosecutor General’s Office and the spy service. Along with two other MPs, he calls for a parliamentary investigation. Putin finally has to appoint a special investigator and the case is withdrawn from the Prosecutor General's Office.
Shchekochikhin soon receives death threats. On July 2nd 2003, he openly calls Deputy Prosecutor General Biryukov the “gray eminence” of the corruption scandal. The member of the Russian parliament then plans a trip to the USA to gather additional information. Shortly before leaving Shchekochikhin comes down with a strange sickness. Two weeks later he dies an agonizing death. To this day it is unclear what killed Shchekochikhin.
Other investigators also pay a price for their curiosity. The head of an investigative unit within the customs authority is murdered in February 2002. Another investigator is beaten up the next day. A car bomb blows up the vehicle of a further investigator.
In the end, the owners and some employees of the furniture chain Three Whales (“Tri Kita”) are convicted. Some members of the customs authority, the spy service and the Interior Ministry lose their jobs.
But important figures in the case remain untouched. Nikolai Patruchev, then head of the FSB spy service, now heads the National Security Council of the Russian Federation. Deputy Prosecutor General Yuri Biryukov, who appears to have pulled the strings behind the scene in this case, is called to the Senate in 2006 where he enjoys immunity to this day. The Russian Presidential Office, the Russian Prosecutor General’s Office and the spy service FSB as well as the furniture company Tri Kita have not responded to inquiries from CORRECT!V about this case.
In the Russian media, Biryukov has denied any involvement in the Tri Kita case. As of publication, he has not responded to an inquiry from CORRECT!V. Saitsev is rehabilitated in 2009, but never returns to the state service. Today he works as a lawyer.
Hilmar L. is not a Stasi agent who was entangled by chance with the spy service and later regretted his actions. Stasi records show Hilmar L. wholeheartedly spied.
In 1980 two Stasi officers approach him to assess his willingness for secret cooperation. According to L.’s 750-page Stasi file, he displays an „open-minded, even interested attitude towards all problems presented to him...He even expressed surprise that the Ministry for State Security had not contacted him earlier.“
For almost ten years, until the collapse of the GDR, L. remains loyal to the spy service. Under the code name „Wolfgang Bley“, he is assigned to monitor his colleagues at the Central Institute for Astrophysics in Babelsberg. He is also tasked with assisting recruitment operations and with collecting information on scientists who have defected to the West.
In August 1980 L. writes to his Stasi case officer: „I will observe strict silence towards third parties in regard to this cooperation. I have been made familiar with the basic principles of secrecy.“
A short time later, his loyalty is tested with a fake letter from West Berlin -- L. passes the test. In 1985, his Stasi supervisor honors him for his successful work and gives him a camera worth 778.50 East German Marks. When he travels abroad, the Stasi pays him 100 West German Marks as an expense allowance.
Due to his good results, on 21st January 1986, „Wolfgang Bley“ is promoted to the status of IMB, an “informal agent in contact with the enemy”.
Hilmar L. seems to find enemies everywhere: he describes a professor in Italy who generously paid L.’s travel expenses as a possible recruiter for enemy counterintelligence.
He even deceives his boss at the Stasi: in Bonn he copies a 50-page commemorative paper on astronomy in West Germany as well as a magazine report on the Strategic Defense Initiative, a U.S. plan to defend against nuclear missiles.
Both documents are anything but secret: they are open to the public in the Bonn observatory library. Hilmar L. loses the documents on the way back home -- and tells his handler that the secret material was stolen out of his luggage by enemy counterintelligence agents.
Hilmar L. does well for himself after German reunification. He starts a career in IT sales. In 1996, L. joins Hewlet-Packard where he rises to become one of the leading managers for HP in Russia.
Later in court records, prosecutors describe L. as one of the main proponents of the alleged bribery deal with the Russian General Prosecutor’s Office. In statements to prosecutors L. denies the allegation.
Does the Russian spy service FSB know about his Stasi past? That would not be surprising. The FSB archive holds numerous Stasi files, and the Russian intelligence service knows the former Stasi agent network.
CORRECT!V asked the Russian Presidential Office and Hilmar L. about these allegations. There was no answer from Moscow, but Hilmar L.’s lawyer said via telephone that his client would not comment on the case.
As a former Stasi agent, Hilmar L. knows the power of spy services. According to German investigators, he urges HP directors to not only take the Prosecutor General's Office into account with bribes, but also employees of the FSB, saying otherwise the deal would not be possible. (L. denies this allegation during an interrogation by German prosecutors.)
In 2009, Hilmar L. returns to Germany.
At this time, the investigation into the HP corruption scandal is already underway. L. is arrested on 2nd December 2009, along with two other former Hewlett-Packard managers. He is held in Leipzig in pre-trial detention. His two colleagues are released just after Christmas; they complied with the prosecution’s request to answer questions about the case.
But Hilmar L. remains silent. For 16 weeks, until 25th March 2010. Then he pays a 350,000 Euro bond and is released.
What did he once write to his Stasi case officer? „I have been made familiar with the basic principles of secrecy.“