DEPUTY PRIME MINISTER KUDRIN PERSONALLY VOUCHES

C O N F I D E N T I A L MOSCOW 005525

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR MEYER, TORGERSON
NSC FOR WARLICK

E.O. 12958: DECL: 11/26/2017
TAGS: EFIN ECON RS
SUBJECT: DEPUTY PRIME MINISTER KUDRIN PERSONALLY VOUCHES
FOR DEPUTY FINANCE MINISTER STORCHAK

REF: A. MOSCOW 5459


B. MOSCOW 5450

Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d).

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Summary
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1. (C) On November 26, Deputy Prime Minister and Finance
Minister Aleksey Kudrin put his personal and professional
reputation on the line in defense of Deputy Finance Minister
Sergey Storchak who was arrested November 15 on charges of
preparing to and attempting to commit fraud (reftels).
Kudrin filed a petition with the court in which he pledged to
guarantee Storchak's cooperation and appearance for all
proceedings related to the investigation and court hearings
on the charges. Storchak remains incarcerated, however.
Investigative Committee officials had announced the formal
charges against Storchak and two businessmen on November 23
but did not release details of the allegations. Speculation
in the press is that Storchak, General Director of Sodexim
Ltd. Viktor Zakharov, and Chairman of the Board of
Inter-regional Investment Bank (IIB) Vadim Volkov are accused
of colluding to divert more than USD 43 million of budget
resources. Finance Ministry officials have said publicly
that the budget legally allowed funds to be released to
Sodexim in connection with Soviet-era debt relief for
Algeria. End Summary.

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Kudrin Launches Defense of Storchak
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2. (C) Advisors close to Deputy Prime Minister and Finance
Minister Aleksey Kudrin told us that on November 26 Kudrin
formally filed a petition seeking the release of Deputy
Finance Minister Sergey Storchak from custody. Kudrin had
previously offered public comments in support of Storchak, to
the point of excluding the possibility that one of his
deputies could have single-handedly schemed to defraud the
government in this way.


3. (C) The petition Kudrin filed, however, went well beyond
words to demonstrate confidence in Storchak, according to Kim
Istyan, Vice President of UralSib Bank. Since Kudrin vouched
for Storchak in writing, providing his personal guarantee
that Storchak was not a flight risk and would cooperate fully
with the investigation and all related court proceedings,
"Kudrin equated Storchak's integrity with his own." Istyan
said he was uncertain how successful Kudrin's petition would
be. He noted that Federal Narcotics Control Service Director
Viktor Cherkesov also protested the arrest of one of his
subordinates, General Aleksandr Bulbov, but was unsuccessful
in securing Bulbov's release from custody.

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The Charges and the Theories
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4. (C) Investigative Committee officials did not make public
many details about the charges against Storchak, General
Director of Sodexim Ltd. Viktor Zakharov, and Chairman of the
Board of Inter-regional Investment Bank (IIB) Vadim Volkov.
Public statements have been primarily limited to the
allegation that the accused organized "an attempt to embezzle
an especially large volume of government budget funds."
Defense attorneys for the three men clarified that the
charges were brought under Articles 30 and 159 of the Russian
Criminal Code. Article 30 provides punishment for the
preparation and/or attempt to commit a crime and Article 159
covers large-scale fraud and embezzlement (reftels).


5. (C) The dominant speculation about the substance of the
charges centers on the complex write-down of Algeria's
Soviet-era debt relief. In 1996, Sodexim purchased a portion
of the Soviet-era debt that Algeria still owed and was paying
to the recently independent Russian Federation. Under this
structure, Sodexim negotiated a series of trade deals whereby
Algeria's debt was reduced as the country purchased goods and
services that Sodexim arranged. In 2006, however, the GOR
forgave Algeria's remaining debt. Sodexim appealed to the
GOR for compensation of the remaining debt, which, according
to the press, totaled USD 26 million. The GOR agreed to pay
Sodexim and the Finance Ministry was in the process of
arranging the payment at the time Storchak, Zakharov, and

Volkov were arrested. (Note: Sodexim's primary bank accounts
were with IIB, hence Volkov's arrest. End Note.)


6. (C) Investigative Committee officials have argued that
the means of compensating Sodexim were illegal and amounted
to defrauding the government. Finance Ministry officials
maintained that the budget did allocate, but had not yet
disbursed, funds for Sodexim. Kudrin observed publicly that
this kind of budget decision must have interagency approval
and could not have been orchestrated without the government's
knowledge.

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Comment
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7. (C) The main theory being promulgated in the press and by
many observers is that Storchak's arrest is a back-door way
to challenge Kudrin and put a check on his authority.
Kudrin's personal affidavit of Storchak's integrity might not
only be a sign of his faith in his deputy but as a
counter-attack to this challenge. By putting his own
reputation on the line, Kudrin is sending a message that he
will not be easily undermined. End Comment.
BURNS