MOSCOW, April 11 (RIA Novosti) – The former CEO of small-arms manufacturer Izhevsk Mechanical Works (Izhmash) has been charged with a 35 million-ruble ($1.1 million) fraud, Moscow police said on Thursday, in the latest of a string of corruption scandals to hit the Russian defense industry.
Vladimir Grodetsky, who was dismissed from his post of Izhmash CEO in May 2011, was detained on suspicion of fraud scheme, the Russian Interior Ministry said on Wednesday.
“He was detained in Izhevsk at 4 p.m. on Wednesday by the Federal Security Service and taken to Moscow,” the Interior Ministry said.
Investigators have found that in 2007 Grodetsky conspired with the managment of the Sarapulsk radio plant to commit fraud. They claim money intended for purchasing components for the plant was transferred to fly-by-night companies in Moscow and then split up between the conspirators.
“A fraud scheme at Sarapulsk radio plant estimated at over 35 million rubles has been uncovered,” the Interior Ministry said. The ministry said on Thursday it was retracting statements it initially made on Wednesday that the amounts involved totaled 5 billion rubles (about $160 million).
Grodetsky faces up to 10 years in jail if convicted, the police said.
Russia’s defense sector has been rocked over the past few months by a string of corruption scandals that led to the sacking in November of Defense Minister Anatoly Serdyukov.
Izhmash is in the process of a merger with another Izhevsk-based gun maker, Izhmekh, to create a Kalashnikov-brand small-arms corporation. The merger was prompted last year by Deputy Prime Minister Dmitry Rogozin, who oversees the defense industry.
Rogozin has made rooting out corruption and inefficiency in the sector a personal mission, saying in November 2012 “a clean-out is inevitable.”
News of the scandal around Grodetsky follows years of financial problems at the plant. In October 2012, employees at the gun-maker, including its legendary designer Mikhail Kalashnikov, wrote to the government complaining about falling wages and production, which dropped by 50 percent in the previous month.
The Defense Ministry declined to order its new AK-12 assault rifle from the plant, saying it had millions of AK-74 weapons in storage. Despite the lack of domestic orders, sales of Izhmash civilian hunting and sporting guns have risen sharply over the last few years, with exports to the United States up 50 percent in 2011, Izhmash said.