Property Department Tries to Dim Spotlight

APPavel Borodin, right, arriving for a meeting with the Genevan prosecutor in Geneva in July.
As the newly emboldened Audit Chamber continues its "very serious" scrutiny of the Kremlin property department, the scandal-tainted former fiefdom of notorious Kremlin insider Pavel Borodin is scrambling to disassociate itself from the excesses of its past.

Although the chamber describes the two-week-old inspection as a routine checkup, it is the first time since 1998 that a probe has been launched into the department, which controls a staggering array of assets worldwide worth billions of dollars.

The inspection is expected to test the department's resolve to break with what is seen as a corruption-ridden history, and the department, known as Upravdelami, is eager to demonstrate that a new era has begun. It has announced it is streamlining its multi-billion-dollar empire and spinning off parasite companies it has bred.

"We are getting rid of all that has stuck," said Upravdelami head Vladimir Kozhin, who took over from Borodin last year.

The department's streamlining is widely seen as a cleanup after Borodin, who was property manager at the Kremlin during Boris Yeltsin's presidency and who has been at the center of a corruption investigation in Switzerland. Swiss authorities have charged Borodin with laundering $30 million in kickbacks in exchange for lucrative construction contracts.

However, property department spokesman Viktor Khrekov described the streamlining as a routine exercise to bring hundreds of the department's companies in line with its main objective -- providing for state institutions.

"This is not a reform, rather it's a restructuring," Khrekov said in an interview. "Our task is to get rid of the companies that don't fit our functions or are inefficient."

As part of its campaign, the department has sent several government agencies a blacklist of 20 companies that it liquidated yet which continued to take advantage of the "Upravdelami" name. The list includes such names as the Integrated Microelectronic Systems Scientific Research Company, the Information and Analytical Agency, Mezhregionneft and Dalnefteprodukt.

"Some companies have used our brand to trade in commodities such as construction materials or oil, which we didn't authorize," Khrekov said. "They used our name to impress local authorities. Taking advantage of our 'patronage,' for example, they kept putting the department's name on business cards, stationery and official letters."

Khrekov said Upravdelami published the blacklist to warn government officials, including those at federal ministries and the Central Bank, that they may be approached by impostors. He added that many of the companies on the blacklist had grown their own subsidiaries. Indeed, in some cases several companies are registered at the same address and headed by the same people as the blacklisted companies.

Khrekov said Upravdelami is looking to liquidate 10 more of its companies at this stage. This would leave the department with 180 subsidiary companies. Kozhin refused to provide a list of the companies that Upravdelami is to retain, and Khrekov intimated that the list will remain secret.

"You wouldn't ask the Federal Counterintelligence Service for a list of its subsidiaries," he said. "Our list is known to those who are supposed to know."

It is difficult to put a cap on the range of goods and services required by Upravdelami's clients, who include the Kremlin, parliament, Supreme Court and the Audit Chamber itself.

Upravdelami intends to restructure some of the inefficient companies that it wants to keep, and sell stakes in some companies while retaining the controlling interest.

"We will put some companies on the market to attract investment while retaining control," Khrekov said.

Some analysts were skeptical about the ease of restructuring Upravdelami, although they said they consider Kozhin an honest bureaucrat.

Yury Korgunyuk of the Indem research group said Kozhin will need to establish control over smaller bosses within the agency who are holdovers from the Borodin era, and this won't be easy.

"The Upravdelami empire has grown way out of proportion and cannot be controlled from the center," Korgunyuk said. "The only way to restructure it is to dramatically cut its size."

Korgunyuk added, however, that the Audit Chamber will attempt to do its best in investigating Upravdelami, especially given the ambitions of the chamber's chief, former Interior Ministry and Federal Security Service head Sergei Stepashin.

Andrei Ryabov of the Carnegie Endowment was more optimistic, saying Upravdelami was clearly parting with subsidiaries affiliated with Borodin, whose ouster, along with other Yeltsin-era Kremlin insiders, was crucial for reforming the agency.

"The most important is to take away financial flows from those who controlled them and change the system of political balances," he said.

The Audit Chamber is to publicly release its findings in February.

A list of items that Upravdelami was allegedly planning to order for a sanatorium was leaked to the press in May. Some of the items on the list, which featured $200,000 jacuzzis, were priced at up to 16 times their market value. Upravdelami has said the list was a fake and got past its top officials by accident.