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. Last Updated: 07/27/2016

Kudrin Deputy Faces Fraud Charges

Deputy Finance Minister Sergei Storchak will be charged by next week with attempting to embezzle $43.4 million from the federal budget, the Investigative Committee said Monday.

Storchak, one of three deputies to Finance Minister Alexei Kudrin, will be charged with attempted large-scale embezzlement as part of an organized group, committee spokesman Vladimir Markin said in remarks carried on state television. The charges carry a maximum sentence of 10 years.

"The evidence in the case suggests that if left free, Storchak could flee from prosecution, intimidate witnesses and destroy evidence," Markin said. The charges would be brought within 10 days of Storchak's detention, he added.

FSB officers detained Storchak on Thursday, as Kudrin left the country to attend an international conference of finance ministers in South Africa. Storchak was due to accompany Kudrin on the trip.

Moscow's Basmanny District Court sanctioned Storchak's arrest the next day.

Kudrin mounted an impassioned defense of his deputy from Cape Town on Sunday, praising Storchak's professionalism and calling the move against him "incomprehensible." He was due to return to Moscow on Tuesday.

Storchak's arrest could be a further sign of increasing clan warfare inside the Kremlin as President Vladimir Putin's top aides fail to agree on a successor candidate for the March election, analysts said.

The high-profile arrest also comes just two weeks ahead of the Dec. 2 State Duma elections as the leadership steps up its anti-corruption rhetoric.

As well as Storchak, who oversaw the country's sovereign debt negotiations and the $146 billion oil stabilization fund, two businessmen were arrested -- Viktor Zakharov, the head of little-known firm Sodexim, and Vadim Volkov, the head of Interregional Investment Bank, or MIB, a former deputy finance minister.

The charges are believed to be connected to the repayment of Algeria's Soviet-era commercial debt. Unidentified government sources told Kommersant that officials had begun meeting this fall to decide how to regulate the $4.7 billion debt, part of which Moscow had decided to forgive in exchange for commercial contracts. One of those contracts involved state arms export agency Rosoboronexport, Kommersant said. Alexei Alyoshin, deputy general director of Rosoboronexport, is a member of MIB's supervisory board.

Storchak, Zakharov and Volkov are suspected of "having created an organized group to embezzle budget funds under the pretext of covering expenses for Sodexim," the Prosecutor General's Office said in a statement, Interfax reported.

According to Kommersant, a key figure in the preparation of the Algerian debt repayment scheme was Anton Drozdov, the head of the government's economics and finance department, Drozdov was sent to Sakhalin Island in September after Prime Minister Viktor Zubkov publicly chewed him out during a Cabinet hearing into failure to deliver earthquake relief to the area.

Several sources said more arrests were expected, and a person close to the investigation told Interfax that the attempted embezzlement had not been carried out fully.

"Thanks to the activities of the special forces, it was possible to intercept the embezzlement of considerable sums from Russia's state budget at the stage of planning and the beginning of its realization," the source said.

VTB chief Andrei Kostin came to Storchak's defense on Monday, calling for "fair treatment."

"I still hope that there is some kind of ... misunderstanding," he said in an interview with Russia Today state television. "I know him as a very professional person."

Zubkov pledged that he would crack down on corruption upon being named prime minister in September. Transparency International ranks the country as one of the world's most corrupt.

Some analysts saw the arrest as a pre-election move to drum up support for an issue that regularly figures at the top of the public's concerns in opinion polls. Others warned of intensified infighting among Kremlin elites as the country moves toward the presidential vote in March.

"This is a struggle among the clans," said Vladimir Pribylovsky, head of the Panorama think tank. "The Petersburg chekists have gone after the Petersburg liberals."

"But this doesn't mean there will be results -- Kudrin and Putin have a long history together," he added.

Kudrin, who worked with Putin in the St. Petersburg administration of Mayor Anatoly Sobchak, is considered a liberal, praised by Western investors for an open economic policy.

The arrests, carried out by the Federal Security Service on the orders of the Investigative Committee, come amid a bout of infighting between the FSB and the Federal Drug Control Service. After the arrest by FSB officers of a senior drug control service officer last month, President Vladimir Putin called for the security services to end the infighting.

Storchak was appointed deputy finance minister in 2005 and has a long history of working with foreign debt. In the mid-1990s, he was the deputy head of the ministry's external debt and foreign credits department while it was led by Mikhail Kasyanov.

Kasyanov, Putin's prime minister from 2000 to 2004, was accused in the national media of skimming off profits on debt deals and misusing the information he held while chief debt negotiator. Russian weekly Versiya once dubbed Kasyanov "Misha 2 Percent," claiming that he had been involved in manipulating Soviet-era debt prices for commercial ends.

Since indicating that he could run for president in 2008 as an opposition candidate, Kasyanov has faced investigation over his purchase of a state dacha, which was later confiscated.

Kasyanov has repeatedly denied any wrongdoing, either over foreign debt or over the dacha.

The campaign against Storchak is being led by the recently formed Investigative Committee, which is run under the auspices of the Prosecutor General's Office but answers directly to the president.