Will Putinism end not with a bang but a warrant? Hot on the heels of the Panama Papers’ revelations about multi-billion dollar slush funds, a Spanish court's decision to issue arrest orders for 12 Russian citizens, including senior law enforcement officials and a Duma deputy, demonstrates the new pressures faced by Russia’s elite, otherwise used to juggling the freedom to steal at home with the freedom to spend and save abroad.

In the process, the elite’s social contract with the Putin regime is increasingly impossible for both sides to sustain.

An antisocial contract

The Spanish case has illustrated the way that the interconnection of crime, politics and business in Russia means that — at some remove — almost everyone of substance within the system is linked with out-and-out mobsters. Even figures generally regarded as “clean” by Russian standards, such as Deputy Prime Minister Dmitry Kozak, feature in the phone-tapped conversations and extensively mapped business connections painstakingly collected by the investigators.

The sistema is one in which everyone does and requires favours, tribute is demanded and offered as much as anything else as a symbolic representation of relative power, and no one is expected to live off their salary alone.

The sistema, not Islamic radicals or freethinking liberals, is the greatest security challenge to today’s Russia

The tsarist model of kormlenie (“feeding”), whereby officials were paid a relative pittance on the expectation that they would use their positions to enrich themselves, was eventually abandoned as backward and corrupt. Depressingly enough, the “trough” emerged as a survival mechanism under Yeltsin. It has become a central feature of Putin's mechanisms to manage the elite.

A still from a 2012 fake video showing Vladimir Putin facing charges of financial machinations and abuse of power. Source: YouTube. Everyone is corrupt to some extent or another, and the question becomes that difficult and subjective one of distinguishing degrees of dirtiness. This is morally corrosive and, as has become increasingly evident, buys political control at the expense of managerial effectiveness.

Mercifully, there are still efficient technocrats still doing their jobs well, whether because they benefit personally or simply out of patriotism or professionalism. In general, though, the result is systemic corruption and inefficiency.

With money getting tight, inefficiency begins to look like luxury

With money getting tight, that inefficiency begins to look like luxury. However, the Spanish case has also highlighted another problem for the Kremlin.

The Soviet elite were corrupt, even to the extent of enjoying western luxuries denied the masses. However, in Soviet times almost all connections with the outside world, licit or not, were managed by the state. External economic relations were the province of Vneshtorg, Vneshekonombank, and similar bureaucratic monoliths. Party members bought western goods at state-owned Party commissaries or hard-currency stores. Even smuggling exclusive goodies for the upper elite was largely handled by the KGB. In other words, Soviet citizens, even members of the elite, had few connections with the outside world.

Cosmopolitan vices

In today’s Russia, things are very different. Those who live by globalisation are finding that they can die by it, too. The modern Russian elite delight in their cosmopolitanism. They travel widely, send their children to study in the west, and are enthusiastic consumers of global products and experiences.

Understanding that, to be rich in Russia is merely to hold assets in trust until the state or someone with better connections or sharper fangs decides otherwise, the elite uses the west as their savings account, their place to stash their often-ill-gotten gains protected by the rule of law.

Those who live by globalisation are finding that they can die by it, too

Until very recently, Russia’s elite have been able to enjoy this privilege because western governments, by no means to their credit, were largely willing to turn a blind eye to Russian kleptocracy so long as the money rolled into and through their financial systems, profited their bankers and lawyers and generally meant business. There is still a resistance to any measures which would impede this flow of easy money, but the Spanish case may help tip the balance.

The other reason the elite could get away with this duality, kleptocrat at home, high-rolling investor in the west, is that the Kremlin allowed it. In recent years the government has become concerned about the outflow of money and campaigned for a repatriation of assets to the welcoming bosom of the Motherland.

However, at the same time nothing has been done to curb the continuing interbreeding of crime, politics, and business. Indeed, many of what Putin would presumably count as his triumphs actually depended on toxic mixture.

The Olympic facilities at Sochi were to a degree built by trafficked labour. The seizure of Crimea was facilitated by a strategic alliance with local gangsters that saw their representative elevated as the peninsula’s premier. The war in the Donbas was partly fought by co-opted crime gangs.

The Kremlin depends on the elite to manage the country. The social contract that emerged is that in return for loyalty, they are allowed, within elastic limits, to steal and enjoy the fruits of that corruption and embezzlement. They operate in a world of backhanders, sweetheart deals, favours and tribute that inevitably connects them to “proper” gangsters, whose services the Kremlin itself sometimes also finds useful.

Everything, to quote Lenin, connects to everything else.

What is to be done?

But this sistema is under serious, growing, perhaps even lethal pressure. Domestically, there is less money to subsidise a system based on graft and clientelism. Keeping some allies happy and plump is leaving others disgruntled and hungry.

In response, the government has to consider increasingly short-term measures. The next round of privatisations, for example, are not to maximise state income or bring better management to structures such as Bashneft and Alrosa. Rather, they will become vehicles to transfer assets into the hands of favoured cronies.

This may help maintain support (or at least the appearance of support) for the moment, but each time the Kremlin hands out more of the family silver, there is that much less left in the drawer.

Each time the Kremlin hands out more family silver, there is that much less left in the drawer

Likewise, how far can the Kremlin continue to turn a blind eye to the corruption and inefficiencies of the system? The recent decision to subordinate the anti-narcotics service (FSKN) to the Ministry of Internal Affairs (MVD) was done for many reasons, but in part its notorious corruption.

To many, the FSKN was more interested in facilitating and “taxing” the drug trade than fighting it, and the MVD – no beacon of purity – now has the unenviable task of trying to cleanse it. Likewise, there appear to be new attempts to clean up embezzlement and corruption within defence procurement. If Putin wants an army able to bully NATO and cow his neighbours, he needs to get the most bang out of his shrinking bucks.

But Putin has built his whole sistema around this pervasive, sometimes almost invisible webwork of relationships that seamlessly connect the mainly-honest, the wholly-dirty, and everyone in between. That webbing, not fear or propaganda, is what he used to “gather the Russian lands” after the centrifugal Yeltsin years.

Unpicking this system would be a Herculean task, and there is no evidence that Putin has the will or the capacity. Instead, Putin confines himself to specific institutional examples, even if — whether he is willing to admit it or not — this is more to give the impression of action than a realistic attempt at change.

Yet the sistema, not Islamic radicals or freethinking liberals, is the greatest security challenge to today’s Russia. The sistema drains the economy, shackles the technocrats, enervates the masses, angers the marginalised, and subverts the message of a resurgent nation. It also creates vulnerabilities with which the Soviets never had to contend. This cosmopolitan elite can be affected by western laws and law enforcement — we have already had the Magnitsky Law and the post-Crimea personal sanctions.

Digging in

The Panama Papers and now the Spanish warrants open up a potential new form of political pressure. After all, the Spanish evidence demonstrates how far Tambovskaya “godfather” Gennady Petrov was connected first-, second- or third-hand to a cast of Russian luminaries who now can be considered potential witnesses at best, accessories at worst.

More and more Russians are finding their opportunities for foreign travel constrained, their overseas assets frozen, their companies flagged as potential investment risks. And why are western governments more willing to provide their magistrates and investigators the resources for such major operations and back them with political muscle? Because of the new geopolitical confrontation, the responsibility for which can be laid squarely at Putin’s feet.

Having established himself as the architect and builder of the new Russia, Putin can hardly escape responsibility for the outcomes of his policies

An elite that was co-opted and contented by the freedom to steal and the scope to use that wealth abroad is, thanks to Putin, finding itself less able to steal and increasingly barred from the west. Putin wants the elite “repatriated” in loyalties and well as lucre, but his capacity to offer them comparable opportunities at home is ever more limited.

And, when it comes down to it, having established himself as the architect and builder of the new Russia, Putin can hardly escape responsibility for the outcomes of his policies.

To be sure, he is not at imminent risk. Putin is digging in behind his Kremlin walls and the newly-created National Guard. But it would be an irony if the west’s most powerful instrument of regime change in Russia was not sanctions or propaganda, but simple arrest warrants.