From Nizhny Novgorod, Russia's so-called cradle of market reforms, Valeria Korchagina reports on the web of fraud, sweetheart deals and embezzling that brought down Andrei Klimentyev. He is the still-popular businessman whose election as mayor was annulled with the Kremlin's intervention.
Andrei Klimentyev, 43, is the sort of get-rich-quick con man you would expect the common people to despise. In his home town of Nizhny Novgorod, he amassed a small fortune that gave him a big Cadillac, a night club and all the trappings of New Russian wealth. He was known as a "gray cardinal" in the shady world of local politics and business. He was quoted as saying, "It's historically inevitable that I wear Paris fashion."
Yet, Klimentyev has emerged as the local hero of Nizhny Novgorod.
Despite allegations of committing $3 million in fraud, he won the election for mayor last March with 34 percent of the vote. A few days later, when police arrested him at a court hearing, the people of Nizhny Novgorod flocked to defend him. Since then, street demonstrations have called for his release and attacked the government for overturning the election and calling a new round of voting. Even after the Supreme Court last week upheld his conviction of embezzlement and bribery, his fans are saying that they will vote for Klimentyev's closest ally.
The transformation of this local tough guy and embezzler into a cause c?l?bre is a symbol of the conflicting passions in Russia's provinces. No one particularly liked Klimentyev a few years ago -- but they hate the double standards in Russian politics even more.
Many in Nizhny Novgorod are asking why the Kremlin was so driven to annul the elections and have Klimentyev thrown in jail. They suspect the Kremlin put pressure on local officials to destroy Klimentyev -- not out of a desire for justice or democracy -- but rather aspart of a cover-up.
Locals know that Klimentyev's partners in the deals for which he was sentenced to six years in jail were the local elite who have gone on to high places in the Kremlin. The list includes Boris Nemtsov, deputy prime minister and former Nizhny Novgorod governor; Boris Brevnov, a banker whom Nemtsov helped become president of Russia's largest company; and Sergei Kiriyenko, then a banker and now prime minister.
The people of Nizhny Novgorod are convinced of a conspiracy to destroy Klimentyev by Kremlin politicians who were embarrassed about what he revealed about their pasts. The story of his rise and fall -- pieced together from court records, a report compiled by the State Duma anti-corruption committee, and interviews with participants -- illustrates much about the tenuous state of Russian democracy, and the clay feet of some of the country's top politicians.
Although virtually unknown outside of Nizhny Novgorod until the mayoral elections earlier this year, Klimentyev was always a big man about town. The sons of a powerful local Communist Party official, Klimentyev and his two younger brothers enjoyed a leisurely, privileged lifestyle that was free from the influence of totalitarian authorities.
Klimentyev's wife, Oksana Klimentyeva, remembered her mother's warning in the early 1980s to stay away from playboys: "My mother used to scare me when I was a kid, telling me about the Klimentyev brothers who had a Volga and who picked up little girls on the street, and God knows what they did to them afterwards."
The local golden boys had access to foreign goods and no shortage of money or friends. Among their pals was a curly-haired student of radio technology at Nizhny Novgorod State University, Boris Nemtsov. The friendship was close. Nemtsov and one brother, Sergei, even dated the same woman at different periods.
The brothers' fortunes turned in 1982 when their father drowned accidentally during an ice fishing expedition. Authorities swiftly brought charges against the freewheeling young men who had suddenly lost their protector. Two months after their father's death, the three brothers were arrested, convicted and sent to jail.
Andrei Klimentyev was locked up for eight years on two cryptic charges. The first charge was based on accusations that he had invented a device that allowed card players to read each others' hands. The second claimed that he was spreading pornography.
Klimentyev owned what was probably the first videocassette recorder in Nizhny Novgorod as well as "underground" Western films. The confiscated videotapes included "Rocky," Bruce Lee movies, disco movies and some mildly erotic videos.
Those very charges were overturned by the Supreme Court last month for lack of evidence. All the same, in the great tradition of Soviet justice, these minor charges had kept Andrei Klimentyev in prison until 1990. By then it was late in perestroika, there was money to be made, and Klimentyev quickly rekindled old ties, made new connections and became a local oligarch. His old friend Nemtsov, meanwhile, was establishing himself as a politician; in 1991, President Boris Yeltsin appointed him head of the administration of the Nizhny Novgorod region. Klimentyev and Nemtsov were often seen together both in official and informal settings. Klimentyev liked to say the two "ran the show" in the region.
"The friendship was really obvious," Oksana Klimentyeva said. "The relationship was not simply business-like but actual friendship."
While Nemtsov enjoyed enormous popularity in the region, Klimentyev was generally disliked for his overbearing manner and sharp personality. He was nicknamed sery kardinal, or "gray cardinal," because of his power -- in particular over Nemtsov. The two were regularly seen driving around the town together. Nemtsov was a guest at the opening of a night club owned by Klimentyev.
In 1993, the two friends decided to work together on the business deal that ultimately was to put Klimentyev back in jail. According to Klimentyev's wife, the deal grew out of a conversation between her husband and Nemtsov. In 1993, Klimentyev was interested in reviving the local Oka ship builder, which had fallen on hard times. At a meeting in a country house, his wife said, Klimentyev suggested to Nemtsov that the government guarantee a loan for a ship building project.
"I think the initiative to get the loan belonged to Andrei. They just whispered something to each other at a dacha. Boris Yefimovich [Nemtsov] gave in to the idea," Oksana Klimentyeva said.
Oka's director, Alexander Kislyakov, had been trying for some time to persuade the Finance Ministry for such a loan to finance the construction of four cargo ships. Nemtsov, by using his political influence, quickly smoothed the way and secured the money from the government on very favorable terms. The $30 million was issued for two years at a rate of 15 percent interest; market rates at that time were more than 100 percent.
Nemtsov also assisted in the deal by securing a guarantee for the loan by the Nizhny Novgorod government, even though such a guarantee was never formally discussed in the local legislature, according to a State Duma investigation.
Under the agreement between Oka and the Finance Ministry, $18 million of the loan would arrive in small tranches of $5 million during the course of 1994. Of $30 million, $18 million would go straight to the shipyard and the remaining $12 million would be frozen in the shipyard's bank account until the company was fully privatized.
These terms were not unusual during the privatization drive of 1993 and 1994, when the government used such incentives to convince reluctant factories to leave state control. But advance knowledge of the $12 million nest egg might have influenced Klimentyev, who immediately started buying up shares in the plant.
Klimentyev also benefitted in the short term. Two Norwegian companies that he controlled, Aroco and Russian Shipping Company, acted as Oka's international agents on the project -- marketing the ships, providing technical documents and buying equipment such as propellers and engines.
Klimentyev's companies received payments in millions of dollars from the loan, portions of which he said he used to make down payments on equipment.
Another friend of Nemtsov also reaped benefits. The loan money was not deposited into Oka's regular bank, Promstroibank, but instead into an account that had been opened with Nizhny Novgorod Banking House, or NBD, run by Boris Brevnov. Three years later, Nemtsov would appoint Brevnov to run Unified Energy Systems, Russia's power generation monopoly.
All was proceeding smoothly until August 1994 when, according to Klimentyev, he tried to obtain prepayment for ship engines -- but was told that the plant had no cash in its accounts.
The plant's director, Kislyakov, had placed $2 million of the loan into a one-year account with NBD at 15 percent interest. This was a lucrative maneuver for NBD, which stood to earn about 100 percent interest on the funds. Kislyakov also invested $500,000 of the loan money in NBD shares.
According to the State Duma report, Brevnov convinced Kislyakov to invest the money. And in the fall of 1994, when Brevnov initially refused to give Klimentyev the $2 million, Klimentyev personally delivered a letter to the Finance Ministry alleging that NBD was misusing the loan.
In other words, it was Klimentyev who first blew the whistle on the affair. And it quickly blew up in his face.
Ministry inspectors found irregularities when they were sent to the plant and, in January 1995, they suspended payment of the remaining $3 million of the $18 million pre-privatization portion of the loan. Despite the controversy, Nemtsov still urged the ministry to continue the payments and even reconfirmed the regional administration's guarantee, according to the Duma report.
With Nemtsov's guarantee, the final $3 million arrived -- only this time the money was transferred directly to Oka's Promstroibank account. The Finance Ministry also ordered Brevnov to release the $2 million deposit and the $500,000 in shares, but took no further action. The ships at this stage were still partially constructed, awaiting delivery of the propellers and engines.
Everything changed in early March 1995. While Finance Ministry and local tax officials were finishing up their investigation of the plant's finances, Nemtsov suddenly turned against his chum, Klimentyev. While Klimentyev was in Norway, where his wife was giving birth to a son, Nemtsov called Klimentyev a "thief" on a local television. He also said that Klimentyev and his wife had absconded to Norway with government money. According to Oksana Klimentyeva, Nemtsov and her husband have barely spoken to each other since that day.
It is not clear what led to Nemtsov's change of heart. Nemtsov himself declined to be interviewed for this article. His private lawyer, Vitaly Khavkin, said Nemtsov must have "received a tip" regarding Klimentyev.
Khavkin went on to defend his client's role in organizing the Oka loan as being in the interests of the Nizhny Novgorod region. "It was all done to do good business, to help the region and even the country," Khavkin said. He added that Nemtsov was misled "because of his belief in [director] Kislyakov and those people who were by Kislyakov's side".
On March 7, 1995, Nizhny Novgorod prosecutors launched an investigation into the affairs of Klimentyev and Kislyakov in connection with the loan; NBDs involvement in the loan was not part of the investigation.
Kislyakov was arrested July 13 for alleged embezzlement and the receipt of bribes from Klimentyev. Klimentyev was arrested Oct. 14, while visiting a friend in Uzbekistan, on charges of embezzlement.
It took over a year for the case to come to trial, a year that Klimentyev spent in prison. At the trial that began in January 1997 prosecutors portrayed Klimentyev and Kislyakov as crooks who had carefully planned the theft of public funds.
The prosecution argued that, in exchange for kickbacks, Kislyakov had agreed to pay Klimentyev inflated prices for the propellers, engines and other services provided by the Norwegian subsidiaries.
Prosecutors alleged that, in April 1994, Klimentyev opened an account for Kislyakov in a Norwegian bank into which he deposited about $30,000 in Norwegian krones over several months. This was tantamount to a bribe, prosecutors said. But Kislyakov and Klimentyev asserted that it was a personal loan with no strings attached. And finally, prosecutors charged that the profits from the high prices Oka was paying Klimentyev amounted to embezzlement.
Igor Melnikov, Klimentyev's lawyer, argues that the prosecution has neither properly investigated the specific purposes of each payment nor proven that the prices were too high. He counters that the prosecution had misinterpreted invoices for justifiable expenses. Moreover, he said, making a large profit is not a crime in itself.
Another line taken by the defense was to characterize the allegations as a civil, not a criminal matter, because in the end it amounted to a commercial dispute between companies.
During the trial, the prosecution added charges connected with an entirely separate instance of alleged embezzlement involving Klimentyev, Oka and a bank that was then run by current prime minister Kiriyenko, another one of Nemtsov's friends in the business world. Kiriyenko was the former leader of the Communist Youth League, who quickly turned to banking in 1991.
It emerged during the trial that, in April 1994, Oka paid $104,000 to Kiriyenko's Garantiya Bank, another bank in Nizhny Novgorod from which Klimentyev had at one point borrowed money.
The prosecution charged that this amounted to stealing money from Oka in order to clear up Klimentyev's firm's debt to Garantiya. Klimentyev acknowledged that Oka had paid the money to Garantiya on his behalf, but str essed that the arrangement was to clear a debt Oka owed him. The payment, he added, was just a matter of convenience.
The trial proceeded. But one of Klimentyev's lawyers, Sergei Ostroumov, said he suspected all along that, in the minds of the prosecution, the result was a foregone conclusion.
Ostroumov points to an incident in fall 1995 when the prosecution impounded a ship, the Stavanger, that Klimentyev had recently purchased from Oka. The defense did not object to the seizure of Klimentyev's property, which was used as security for a possible damages claim against Klimentyev. But Klimentyev's lawyers were outraged when the prosecution sold the ship for $2.5 million before the trial had concluded. Ostroumov said the money was handed back to Oka, which used the funds to pay salaries and other expenses. In effect, Klimentyev's property was confiscated before he had been convicted.
When the Nizhny Novgorod regional court handed down its ruling in April 1997, Klimentyev was convicted of embezzlement.
Although Judge Vladimir Sodomovsky ruled in favor of the prosecution, in an apparent acknowledgement of the weakness of the case he sentenced Klimentyev to a term of only one year and 184 days in prison, plus damages of $2.5 million. The prison term matched the number of days Klimentyev had already spent in a pretrial detention center, and the damages had been satisfied by the sale of the Stavanger. Klimentyev walked free.
Prosecutors immediately appealed the sentence to the Russian Supreme Court on grounds that the terms were too light. The high court agreed in July 1997 but, rather than impose a new sentence, ordered a retrial in the same Nizhny Novgorod court.
Regional court Judge Vasily Popov was appointed to preside over the retrial, which was already under way when Klimentyev won the five-way mayoral election in March with 34 percent of the vote. Popov seemed positively disposed to Klimentyev, publicly congratulating him on his victory and initially throwing out a request by the prosecution to revoke the defendant's bail.
But within a few days, the Kremlin -- where Nemtsov was now a crucial power broker -- erupted in fury. Yeltsin expressed concern, sacked his envoy to Nizhny Novgorod and dispatched Yevgeny Sevastyanov, one of his toughest aides, whose mission was to challenge the election of a "convicted criminal" to run Russia's third largest city.
Yet, under Russian law, Klimentyev's appeal was still pending; he had been convicted of nothing but the Soviet-era crimes of card sharping and the sale of erotic videos.
Still, on April 1, the Central Election Committee in Moscow voided the mayoral election on grounds that the candidates had violated campaign rules by promising "improper inducements." In Klimentyev's case, he promised to improve the economic situation of the populace. Such pledges, of course, are part of any campaign.
The nullifying of the election spurred immediate protests in Nizhny Novgorod. The embezzler and millionaire, Klimentyev, was suddenly transformed into a popular hero. "Either eliminate me or jail me," he said at a press conference following the commission's move.
The Kremlin chose the latter. On April 2, Popov reversed himself and revoked bail. Klimentyev was jailed. On the day of his seizure, extra police officers were called in to defend the court building against protesters who demanded Klimentyev's freedom. With a new election yet to be scheduled, the timing of Klimentyev's retrial became crucial. A conviction would mean he was out of the race. But if the case could be delayed, and he won the new elections, he would be immune from prosecution.
Nizhny Novgorod's 1.5 million residents were captivated by the case.
The government scheduled fresh elections for Sept. 27. That meant that Klimentyev's lawyers would have to delay a final verdict in the case for five months in order to maintain their client's eligibility.
The retrial was concluded on May 27 and, in a strongly worded verdict, the judge sentenced Klimentyev to six years in prison -- four times the length of his previous sentence.
"Aiming to misappropriate a portion of the money arriving from Oka, Klimentyev won over plant director Kislyakov in order to commit embezzlement. Both of them worked out a mechanism for the misappropriation and further concealment of the money," stated the ruling.
He was also ordered to pay $3 million in damages, in that he was convicted of embezzling nearly that amount from the $30 million loan. In sharp contrast, the court handed Kislyakov -- the Oka director convicted of accepting the bribe and embezzled funds -- a suspended sentence of five years.
Klimentyev's lawyers sought further delays by appealing the lower court ruling, but the matter was finally put to rest Monday. The Russian Supreme Court, the last word on appeals, affirmed the six-year sentence and thus excluded Klimentyev from the race for mayor.
Anger is such in Nizhny Novgorod that the Sept. 27 election still promises to be a referendum on the Kremlin's actions to destroy Klimentyev. A member of the Duma's anti-corruption committee, Vladimir Semago, who conducted the parliamentary investigation into the case, has been named by Klimentyev as his proxy in the election. If Semago wins, as is now highly likely, it will be a major slap in the face for the Kremlin. Semago is no friend of Nemtsov.
Klimentyev's lawyers are hoping to embarrass the Kremlin in other ways, too, pledging to lodge a complaint with the European Court of Justice over alleged procedural irregularities in the trial.
Klimentyev is now serving time in a medium-security prison in the town of Dzherzhinsk, near Nizhny Novgorod.
Meanwhile, Oka is in decay. The four ships were never completed, and eventually turned into scrap. The $18 million loan was repaid, but with funds from the Nizhny Novgorod government, Semago said.
Oksana Klimentyeva said the loan money was eaten up a long time ago. "But they are still producing metal grills and grills to dry mushrooms on and whatever else can be cut out of the metal they still have."