Choices, choices.

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Watch What Putin Does to His Top Prosecutor

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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The ubiquitous corruption and lack of accountability in Vladimir Putin's Russia were, until recently, easy to sweep under the rug. But the relentless decline in oil prices is making the president's political bets unsafe. Now the country's problems are beginning to fester in plain view, giving the regime a tough choice: Start liberalizing or go for harsh repression.

The case of Prosecutor General Yuri Chaika will be a weather vane of what's to come. He was justice minister when Putin became president in 2000, running, among other things, Russia's vast prison system. In 2006, Putin made him prosecutor general. Apart from prosecuting cases on the state's behalf, the prosecutor general's office exercises control over all criminal investigations and coordinates the activities of all law enforcement bodies, making the prosecutor general one of the country's most influential people.

On December 1, a nonprofit group led by anti-corruption activist Alexei Navalny published the results of a yearlong investigation into the business affairs of Chaika's two sons. Even to hardened Russians, the revelations were shocking.

The ex-wife of Chaika's deputy, Gennady Lopatin, was linked to various ventures both with the prosecutor general's older son, Artem, and with the wives of members of a notorious mob that terrorized part of southern Russia for years. Apart from connecting some of the most notorious criminals in modern Russia with Chaika's family and underlings, Navalny's investigation contained well-researched episodes involving alleged illegal takeovers of businesses in favor of Artem Chaika, aided by local prosecutors. The elder Chaika was shown to have omitted a palatial home near Moscow from his property declaration. 

A 44-minute movie of the investigation has been viewed 3.4 million times on YouTube. Yet official comments on the findings were off-key to the point of being ridiculous.

Putin's press secretary, Dmitri Peskov, said the investigation "did not talk about the prosecutor general, only about his adult sons who are in business on their own," though the entire point of the investigation was to show how Chaika's connections and the entire system under his direction allegedly aided his sons' enterprises. When asked about the Chaika case, Prime Minister Dmitri Medvedev mumbled in a televised interview:

As for all kinds of publications, you know yourself how they emerge and in what way, and they are not always the results of objective investigations and the result of the objective activity by certain persons. They are very often made to order. I won't give an assessment to specific publications, simply so as not to advertise them, and that's precisely the goal this publication is after. Moreover, this is always part of a political struggle.

He added that the law enforcement system was supposed to thoroughly check all corruption allegations, but that can hardly be taken seriously: Yuri Chaika is, of course, in charge of coordinating the country's law enforcement.

Chaika himself declared the investigation a hatchet job. On Monday, the daily Kommersant published his lengthy letter to the editor, making accusations against William Browder, a U.S.-born British subject who was once a wealthy investor in Moscow but is now persona non grata in Russia. Browder claims his business in Russia was stolen by Russian bureaucrats and law enforcers. Sergei Magnitsky, an auditor who worked for Browder and was jailed allegedly for investigating misdeeds, died in prison in 2009, and Browder has been waging a campaign to pin the death on Putin and his system ever since. The U.S. Congress in 2012 passed the so-called Magnitsky Act, imposing travel bans and asset freezes on Russian officials allegedly involved in the case.

"I have no doubt that W. Browder and the intelligence services that back him are behind this slanderous film," Chaika wrote. "There is a global goal -- to compromise the Russian prosecutor general and the regional officials subordinate to him, to present our country as a bad business partner, a country worthy of economic and other sanctions."

Browder told me he had never worked with Navalny on any project. On Monday, he issued a news release saying he had been "very impressed with the investigation" but that he hadn't cooperated with it in any way.

"After watching this movie, it's clear that Prosecutor Chaika has serious and grave allegations to answer to," the release read. "It's simply not credible for him to say that he can ignore them because a foreigner who is regarded as Putin's No. 1 enemy was supposedly behind them."

Besides possibly overestimating his own importance to Putin, Browder is probably wrong on the credibility issue: The "foreign intelligence services" connection was the last trump card the Kremlin could play in response to Navalny's charges. 

During the carefree years of Russia's oil wealth, when a barrel of Brent crude fetched more than $100, Peskov's flippant denial or Medvedev's clumsy hint that Navalny was just trying to further his political career might have sufficed. Back then, Russians knew the ruling elite was corrupt, but they didn't care much: They were themselves doing better than ever before, and who was to say Putin's political opponents weren't just as venal?

In the last two years, as oil dropped to $55 to $60 per barrel and the illusion of wealth melted with the devaluing ruble and shrinking government reserves, Putin has sought to transfer blame to treacherous foreigners who are trying to undermine Russia. It worked in 2014 when Russia annexed Crimea in response to what Putin called a U.S.-backed coup in Ukraine. It worked this year, too, as Russia entered Syria, ostensibly to fight Islamic State, and as Putin quarreled with his Turkish counterpart, Recep Tayyip Erdogan, over a downed warplane.

Putin cannot be sure, however, that the anti-Western rhetoric of Fortress Russia will still work with oil worth $35 per barrel -- or, God forbid, even less. The finance ministry's worst-case scenario for 2016 is $40 oil. The Central Bank has tried to imagine $35 -- and said it would lead to a 3 percent economic decline, a fiscal deficit of 5 percent gross domestic product and the exhaustion of the government's reserve fund by the end of the year. On Monday, Brent traded at $37 per barrel.

With oil unlikely to rebound soon, Putin cannot count on lulling Russians into passivity by using propaganda alone. He clearly fears that his enemies' activity will increase and become more efficient. In late 2013, Putin pardoned Mikhail Khodorkovsky, a former oil tycoon who had been his most resourceful political opponent. Last week, Khodorkovsky was charged in absentia as an accomplice to murder -- possibly to make sure he couldn't return to Russia from his exile in Switzerland.

Putin faces a harsh dilemma. He could try to make Russia more competitive by carefully retreating in Ukraine, getting Western sanctions lifted, and liberalizing the domestic economic climate. That would mean dismantling the backbone of his regime: the obedient law enforcement system, run on his behalf by people like Chaika, loyal but unpopular because of their ruthlessness and greed. That would improve the economy but undermine his power. Or Putin could drop the remaining pretense of democracy and rule openly by force, ordering mass reprisals against opponents both real and imagined.

The system Putin has created is pushing him toward the second option. The parliament is considering legislation that would make the "discreditation of the Russian Federation" a crime. The Federal Migration Service has drafted a bill that would bar foreigners who favor the regime's overthrow from entering Russia. Pro-Putin officials and legislators have even been discussing the reintroduction of Soviet-style exit visas.

The unlikely liberalization option would require Putin to fire Chaika. If the prosecutor stays on despite being unable to refute any of the allegations against him, it will be a clear sign that Putin is either going for the dictatorship scenario -- further tightening the screws next year -- or hoping to muddle through by doing nothing, a strategy that won't help him much if oil keeps getting cheaper.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net