May 25, 2020
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Migs That Weren't

Russia loses $237 million in a fake MiG deal with India

Migs That Weren't

A web of intrigue involving a $237-million fake arms deal with India is threatening to turn into the biggest financial scam in post-Communist Russia and create complications in bilateral military cooperation. On July 14, Muscovites were jolted by an announcement by Russia's Central Bank chairman Sergei Dubinin, accusing former deputy finance minister Andrey Vavilov and several major financial institutions of criminal profiteering by mishandling a total of half-a-billion dollars in government funds.

According to Dubinin, while in office, Vavilov twice—in 1996 and 1997—approved Finance Ministry payments that failed to reach their destinations. The unusually outspoken chief banker said $275 million meant to pay back wages to public sector employees for the Moscow regional government were transferred to Unikom-bank, one of Russia's most aggressive banks, where they were misappropriated.

But the scandal centres mostly on the second case—the transfer from the state coffers of $237 million officially intended for advance financing of the MAPO aircraft group, which needed them to fulfil an alleged contract to produce MiG-29 advanced fighters for India.

The funds earmarked for MAPO have allegedly not reached its account at Unikombank, while some of the funds for the Moscow regional government were diverted to a bank account in Barbados, Dubinin claims. According to reports, the Barbados bank is owned by a senior Unikombank official. Dub-inin says Unikombank refused to allow the Central Bank to look at the MAPO account.

Unikombank got state funds in the form of Ministry of Finance bonds in a transaction approved by Vavilov in 1996. The transaction is said to have taken place through MFK, a subsidiary of another major bank—Uneximbank. Vavilov had been removed from his post in the March cabinet reshuf-fle but then immediately became MFK's president. Uneximbank's founder and president Vladimir Potanin was deputy premier during the alleged misappropriation.

The Russian prosecutor-general's office, to which Dub-inin had submitted evidence before going public, has launched a criminal investigation. "All the necessary documents have been confiscated," deputy prosecutor general Mikhail Katyshev told Interfax news agency. Vavilov, however, claimed at a press conference that the allegations were "groundless" and that MAPO had got the money all right.

According to experts, the only thing that could shed light on the issue in the midst of the ongoing financial mud-wrestling is the alleged Indian contract itself. If everything was done within the law, where are the MiGs? Outlook got hold of a letter by premier Viktor Chernomyrdin sent to his then Indian counterpart Deve Gowda on October 14, 1996, which says: "The president of the Russian Federation and the government attach a high significance to the fulfillment of a Program of military-technical cooperation between Russia and India into the year 2000.... I have given orders to...MAPO complex to ensure together with Russian weapon manufacturers the priority in fulfillment of Indian orders, including the delivery of MiG-29 airplanes, to be covered by the unused part of the Russian state credit to India extended according to the Agreement of September 17, 1992".

It is the premier's signature that will be apparently used by Vavilov in his defence. But Indian Embassy officials in Moscow say no new contract on MiGs was negotiated. Asked to comment, the first deputy director, MAPO MiG, Ivan Budko, refused to confirm or deny the deal.

Analysts presume those who masterminded the fake deal misinformed the premier that it had been signed. "The most interesting thing is that it reveals the scale of corruption in the top echelons. Moreover, its architects knew quite well how to exploit current Russian foreign policy priorities," said Sergei Solodovnik, research fellow with the Moscow-based Institute of International Relations. "India is Russia's strategic partner in Asia and one can easily milk money for cooperation with her even from Russia's crumbling budget".

According to Commersant Daily, Dubinin struck a blow at Vavilov to "protect the interests of other financial groups who feel that the MFK and Uneximbank have become too powerful". But experts say Dubinin simply fulfilled his duties as the country's top banking regulator.

Whether the alleged irregular financial practices will be weeded out or not, such scandals can hamper ties with Delhi. As press-secretary of MFK Oleg Sapozhnikov admitted: "We may frighten Indians and make them much more cautious and restrained in dealing with us." 

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