Russian investigators raid defense firm in fraud probe

Reuters News
Posted: Oct 25, 2012 8:08 AM
Russian investigators raid defense firm in fraud probe

By Nastassia Astrasheuskaya

MOSCOW (Reuters) - Russian investigators raided the offices of a defense ministry firm on Thursday and opened five cases of fraud against the company, stepping up a crackdown on multi-billion dollar corruption in the defense industry.

The investigative committee said 3 billion roubles ($96 million) were missing from the budget of state-owned military contractor Oboronservis, which it blamed on officials selling property to commercial firms at prices below the market rate.

Russia is the world's second largest arms exporter, and its defense industry has been strengthened by President Vladimir Putin's plans to increase spending to modernize the military.

But the sector is plagued by corruption. Last year chief military prosecutor Sergei Fridinsky said a fifth of the state's defense budget was stolen each year by crooked officials, generals and contractors - an annual theft of around $10 billion.

"Today, as part of the criminal cases, investigators are conducting searches and seizures of documents at Oboronservis, (and) questioning the officials," the Investigative Committee said in a statement on its website on Thursday.

Defense Minister Anatoly Serdyukov, who served as chairman of board of directors at Oboronservis until 2011, was present at the firm's offices as the raid took place and offered his support to investigators, Interfax news agency reported.

Putin appointed Serdyukov as defense minister following his return to the Kremlin in May, with a remit to overhaul the armed forces and restructure the bloated defense industry. Russia's investigative committee, often referred to as the Russian FBI, answers directly to Putin.

"Any public announcements about the size of the losses and the participation of any officials of the holding Oboronservis, are no more than potential scenarios until the investigation is complete," Interfax reported Serdyukov as saying.

Oboronservis, which was created in September 2008, is responsible for ensuring all the needs of the Russian army are met - from heavy machinery to food and educational materials.

Russia allocated more than 1.5 trillion roubles ($48 billion) for national defense in its 2011 budget, and Putin last year promised to inject the defense budget with 23 trillion roubles ($734 billion) over the next decade.

(Reporting By Nastassia Astrasheuskaya, Editing by Thomas Grove and Rosalind Russell)