The Sal’ye Commission found Putin very uncooperative;16 according to the Lensovet’s former chair, Belyayev, when Putin appeared before the deputies, he challenged their authority to call someone to account who had not been appointed by them,17 and he refused to provide the full set of licenses and contracts, citing, according to the official report, “commercial confidentiality.” Nevertheless the Commission conducted an investigation and submitted its report to the City Council. On that basis, the Council prepared its own nineteen-page report, signed by head of the City Council, Belyayev, in which it concluded in Section 2.2 that Putin’s actions were “flagrantly and repeatedly in violation of the law.”18
Further the Council report made a number of specific charges. First, most of the contracts contained no or low penalties for nondelivery—in the range of 1 to 5 percent only.19 “Such an approach toward penalties shows that the Committee for Foreign Liaison of the Mayor ‘distributed’ them in the interests of the licensees and not the city,”20 a situation that “from a legal point of view allows firms and intermediaries to evade commitments.”21 The report stated that many of the companies had vanished after they had taken their materials out of the country, sold them, and deposited their profits in offshore banks.
Second, most of the licenses and contracts were prepared incorrectly, from a legal standpoint, and were not therefore capable of being upheld in court. That is, the city had no legal recourse to sue for nonfulfillment of contracts because the contracts were not legally binding. Putin and his deputy, Aleksandr Anikin, both lawyers, were specifically accused of providing unilateral concessions and preferences that “ignored the interests of the city” and intentionally doing shoddy work so that firms could “evade their commitments without damage to themselves.”22 The contracts and licenses lacked a proper signature, stamps, and legal details that rendered them illegal.23 More than half lacked the signature and stamp of one of the two parties.
Third, while large penalties were not charged for nonreceipt of foods, the commissions charged for licenses by the KVS were exorbitant, ranging from 25 to 50 percent.24 What was done with the money the KVS earned in this way was not revealed. However, it is clear that some of it went into the Mayor’s Contingency Fund, which Putin had access to for funding projects in St. Petersburg and abroad, thus making it another vehicle for corruption and capital flight. The total KVS commission fees for twelve contracts exceeded $34 million.25, II
Fourth, the Council report concluded that several of the firms chosen had “close ties with officials of the Mayor’s Office (’Kompleks,’ ‘Interkomtsentr,’ the Foreign Economic Agency of Lenoblispolkom, etc.) or were created not long before the signing of the agreements.”27 The company Interkomtsentr Formula-7 already had a storied history. In an agreement with this firm,28 Putin gave them the right to trade 150,000 tons of oil products to the West (given to them at a contracted internal rate of 450,000 rubles, officially about $270,000, but worth on the world market at that time $112,500,000), in return for delivering 300,000 tons each of butter, sugar, and potatoes to St. Petersburg (valued according to the contract at 4.215 billion rubles, or $2.5 billion), with a penalty of only 2 percent for nondelivery. The contract was signed by Putin and G. M. Miroshnik, president of Interkomtsentr Formula-7. Miroshnik had already served two jail sentences and was alleged to have been involved in the misappropriation of 20 million Deutschmarks earmarked for the relocation of the USSR’s Western Group of Forces when it withdrew from East Germany. A parliamentary investigation into Interkomtsentr Formula-7 concluded, “The operations involving the duty-free importing of goods (under the guise of military property) owned by the [Interkomtsentr] Formula-7 Firm are criminal, and in their actions one can see the qualification of crimes under the heading of smuggling.”29 Observers maintained that for much of his previous professional life, Putin “could not have remained uninformed about Miroshnik’s exploits.”30 Miroshnik evidently worked with a circle of Germans from the east who Irene Pietsch claimed were also connected to Putin. When Putin and his wife went to Moscow in 1996, Lyudmila Putina used to send faxes to her friend Pietsch from the Interkomtsentr Formula-7 offices in Moscow: “These were East Germans whom Putin had met in Dresden and who were now living in Moscow, where the husband occupied a managing position in one of the large German banks.”31 Miroshnik was not only connected to the Western Group of Forces deal but also became the advisor to General (and at that time Vice President) Aleksandr Rutskoy prior to the 1993 parliamentary showdown with Yel’tsin.32 Miroshnik is said to have flown on Rutskoy’s plane to Spain to escape prosecution, going briefly to the U.S. on forged documents, and returning to Greece, where he claimed citizenship based on his father’s Greek ethnicity. He returned to Russia after Putin was elected, and the fraud case against him was dropped for “insufficient evidence.”33
Of particular interest at the time and subsequently was the contract signed with the foreign trade branch of the Kirishinefteorgsintez refinery, also called Kinef, based in Kirishi near Leningrad. Gennadiy Timchenko had worked in its foreign trade branch, Kirishineftekhimexport, since at least the early 1990s.34 Timchenko and Putin were said to have collaborated on this deal,35 setting the stage for their reported subsequent association in the oil trading company Gunvor,36 which was confirmed by the U.S. Treasury in announcing sanctions against Timchenko.37
A rare interview given by Timchenko to the Wall Street Journal in 2008 provides a glimpse of his background and connection to Putin. The authors of the article provide the following information:
When Mikhayl Gorbachev came to power in 1985 and began relaxing the government’s monopoly on trade, Mr. Katkov says he and Mr. Timchenko hatched a plan with Yevgeniy Malov, who worked in a state trading agency in the same office block. The three lobbied a state-owned refinery in nearby Kirishi to set up an in-house operation to trade oil, Mr. Katkov says. In 1987, several refineries, including Kirishi, were given the right to set up trading branches to export a limited range of products. The refinery set up a trading arm and hired the trio. “My luck started there,” Mr. Timchenko said. . . . Mr. Putin, meanwhile, returned from his. . . . KGB stint in East Germany to his hometown of St. Petersburg. There, as head of the city’s Committee [for Foreign Liaison], he handed an early piece of business to Mr. Timchenko and his colleagues. The 1991 collapse of the Soviet Union and its command economy had left St. Petersburg dangerously short of food. To help the city raise money, Moscow granted oil-export quotas to local authorities. Mr. Putin’s committee passed these to Mr. Timchenko and his crew at the refinery trading company, which used the proceeds from foreign sales to buy herring from Iceland and other foodstuffs. Some of the barter deals supervised by Mr. Putin drew an investigation by St. Petersburg’s city council.III, 38
Both Timchenko and Putin initially denied that they had a close relationship, and indeed Timchenko sued Britain’s Economist magazine for libel for a 2008 article that contained the following passage about Rosneft, Russia’s largest oil company that is majority owned by the state:
Rosneft sells the bulk of its oil through a Dutch-registered trading firm, Gunvor, whose ownership structure looks like a Chinese puzzle. The rise in Gunvor’s fortunes coincided with the fall of Yukos. A little-known company before 2003, Gunvor has grown into the world’s third-largest oil trader, which ships a third of Russia’s seaborne oil exports and has estimated revenues of $70 billion a year. One of Gunvor’s founders is Gennady Timchenko, who sponsored a judo club of which Mr. Putin was honorary president and worked in an oil company that was given a large export quota as part of a controversial oil-for-food scheme set up by Mr. Putin during his time in St Petersburg. Mr. Timchenko says he was not involved in the deal and his success is not built on favours.39
The Economist subsequently cut this passage from the online version of the article and issued a statement: “We accept Gunvor’s assurances that neither Vladimir Putin nor other senior Russian political figures have any ownership interest in Gunvor.”40 The British week
ly Private Eye noted that despite the Economist’s statement, there had been no apology, no settlement, and that Timchenko’s “people,” having seen the Economist’s long defense document and realizing that “fresh revelations” might be made, simply abandoned the case.41
Likewise the British Guardian quoted Vedomosti as suggesting that Timchenko “abandoned” his libel case after realizing that he might have to “reveal potentially embarrassing details of his private bank accounts and the ownership and asset structure of his Swiss-based oil trading company, Gunvor.”42 The newspaper also reported on an interview with the Russian political analyst Stanislav Belkovskiy in December 2007: “Putin had secretly amassed a $40 billion fortune. Putin was the beneficial owner of ‘75% of Gunvor,’ [Belkovskiy] claimed, adding that Putin’s ownership structure was concealed through a ‘non-transparent network of offshore companies.’ Putin denied the claim three months later.” Alluding to the pressures that might have been exerted on Timchenko to drop the suit, the Guardian quoted an anonymous source familiar with the case saying that Timchenko may not have understood the high-status role of the Economist in Britain: “He thought he was suing some tabloid. He didn’t realise he was suing the British establishment.”43
Possibly emboldened by Timchenko’s retreat, Russian newspapers also started to investigate the extent of his business dealings and favorable treatment from the Kremlin.44 In 2011 Putin did finally admit publicly that he had known Timchenko since the beginning of the privatization process in St. Petersburg, when “he [Timchenko] worked with my [Putin’s] friends and colleagues in Kirishinefteorgsintez.”45
Timchenko was the subject of what the Wall Street Journal described as “persistent whispers” about a KGB background, which Timchenko dismissed as a “fairy tale.”46 He graduated from the same Mechanical Institute as other members of the Putin inner elite, including Ozero cofounder Vladimir Yakunin and both Aleksandr Grigor’yev and Sergey Naryshkin.47 As noted earlier and confirmed in other sources, he linked up with two other colleagues, Andrey Katkov and Yevgeniy Malov, to set up an in-house foreign trade operation called Kirishineftekhimexport within the state-owned Kirishi refinery to export a limited range of products after Gorbachev changed foreign trade laws in 1987.48 They partnered with Andrey Pannikov, who admits to still being on the KGB bankroll at this time,49 setting up SP Urals, a joint venture with a Swedish company and several Russian partners, including Timchenko’s Kirishineftekhimexport, where by then Timchenko had become head of the export division.50 Putin’s very first application to export materials was with Kirishinefteorgsintez, signed on December 20, 1991,51 citing authorization from Deputy Prime Minister Gaidar on December 4, 1991.52 The final report from the St. Petersburg legislature supported the Sal’ye Commission’s finding that the fuel left the country, but the proceeds were not repatriated.53
Trading in oil was particularly lucrative because the domestic wholesale price for a ton of oil in early 1990 had dipped to 30 rubles (just over a dollar at the unofficial exchange rate)—the price of a pack of Marlboros on the streets of Moscow. At this time the world market price exceeded $100 a ton.54 When trade was completely controlled by the state, individuals could not legally sell oil abroad at domestic prices. But once the foreign trade rules were relaxed and private cooperatives were formed in the late Gorbachev period, there was a short period when vast fortunes were made this way.55 Raw materials were “purchased” at domestic prices by cooperatives, which were given an export license by Putin’s KVS or by other legal authorities, and sold abroad at world market prices. In these transactions, sometimes an authorized local government official, like Putin, was part of a joint venture, and sometimes he simply licensed and regulated this newly emerging private enterprise. No one would have objected to Putin’s KVS being listed as a contracted party if a fully transparent and documented exchange had actually taken place in which oil was either sold for sums that went back to the city coffers or full shipments of food arrived. But when the oil left the country and the food didn’t arrive, that was another story: as a Financial Times investigation showed, Timchenko’s company “was a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Mr. Putin when he worked as head of the city administration’s foreign economic relations committee in 1991, local parliament records show.”56 Timchenko and his colleagues were never prosecuted, and indeed he went on to establish Gunvor.
Charges of Putin’s connection to Gunvor and Timchenko were long-standing among Russian analysts, including the presidential candidate and former deputy prime minister Ivan Rybkin, who in 2004 maintained, “I—and not just me—have lots of concrete evidence of Putin’s participation in business. [Roman] Abramovich, as is known, but also Timchenko, the Koval’chuk brothersIV and others are responsible for Putin’s business.”59 Shortly after making this statement, Rybkin disappeared from Moscow, and upon returning accused the Kremlin of having kidnapped him. He subsequently withdrew from the race. Stanislav Belkovskiy became the director of the National Strategy Institute, a think tank that at one time was politically aligned with Putin, and made similar claims about the link between Timchenko and Putin.60 Putin himself has consistently denied having any interest in Gunvor. Timchenko did say only that 20 percent of the company is owned by an associate in St. Petersburg, whom he declines to name.61 Repeated investigations in the Russian and Western press asserted the close relationship between Putin and Timchenko and insinuated that Putin is a hidden beneficial owner of Timchenko’s Gunvor but did not produce concrete evidence of that ownership.62 Then in 2014, the U.S. government’s sanctions announcement claimed a direct connection between Putin, Timchenko, and Gunvor: “Timchenko’s activities in the energy sector have been directly linked to Putin. Putin has investments in Gunvor and may have access to Gunvor funds.”63
In January 1992 Putin also registered a company called Golden Gates, in which, as reported in the Financial Times, he and Timchenko both participated. It was reportedly set up to build an oil terminal in St. Petersburg, but according to a banker involved with Golden Gate, the plans fell apart when organized crime blocked the deal, leading, the Financial Times claimed, to Putin’s having to send his daughters to Germany for safety.64 But it was Gunvor International, with Timchenko as co-owner, that brought Timchenko into the ranks of the world’s ultrarich. The oil trading firm, which grew out of and benefited from the Russian state’s dismantling of Yukos in 2003, eventually gained control of over 5 percent of Russia’s total economic output65 and revenues of over $70 billion annually.66 Forbes.ru estimated Timchenko’s personal worth at $14.1 billion.67
Another of Putin’s personal friends stood behind this first transaction. This license for 150,000 tons of petroleum products went to Nevskiy Dom, which was owned by Putin’s friend Vladimir Smirnov, who went on to cofound the Ozero Cooperative with Putin. Nevskiy Dom was subject to only a 5 percent penalty for nondelivery, and Smirnov provided a 25 percent fee to Putin’s KVS in return for the license.68 Smirnov would be involved with Putin in the St. Petersburg Real Estate Holding Company and ultimately would follow him to Moscow, where he worked in the Presidential Property Management Department and then became chief of the Russian Federal Atomic Energy Agency.
Prices in the contracts were either absent altogether, making it impossible to assess the economic efficiency of the transaction, or were so understated that the Sal’ye report accused Putin’s KVS of sanctioning “dumping.” The difference between the amounts charged for eight rare earth minerals and their value on world markets was almost 14.2 million Deutschmarks, or $9.4 million.69 The company involved, Dzhikop (or Jikop in German), registered only at the end of October 1991 with capital of only 100,000 rubles, was evidently owned by a front man, an unknown German subsequently identified as Peter Bachmann.70 Dzhikop received a tender for rare earth metals in which the sale price was up to two thousand times lower than world market prices, leading to condemnation by the St. Petersburg City Council of the “criminal nature of the terms and
conditions of the agreement” and to the conclusion that it was not surprising that the company “self-dissolved” and put the “total revenue in accounts of foreign banks.”71
Vladimir Pribylovskiy subsequently stated that Dzhangir Rahimov was behind the company and he was the brother of one of Putin’s classmates from Azerbaijan and closest friends, Ilham Rahimov.72 Putin’s coworker in Dresden and biographer claimed that while in Dresden Putin had found a way to visit “his lawyer friend (and possible classmate)” in Azerbaijan and had come back horrified at the complete failure of Soviet policy there—instead, Putin reported, “nepotism among clans was just like the nepotism in the Party’s higher ranks, so evident within the ‘civilized’ part of the USSR—in Russia.”73 A 2012 Forbes Russia investigation into the relationship between Putin and Ilham Rahimov confirmed that they had been classmates and friends in the Law Faculty at Leningrad State University; Putin often stayed in Rahimov’s dorm room and they shared a love of judo. Presidential spokesman Dmitriy Peskov confirmed to Forbes Russia that the two had indeed been friends at university. Forbes Russia listed Rahimov’s net worth in 2012 at $2.5 billion.74
The documents used by the Sal’ye Commission show Putin’s guiding hand in these activities. He signed contracts at below-market rates; he intervened with Moscow to gain the authority to sign export licenses; he intervened to override the objections of the head of customs, who had refused to open the border because the paperwork was not in order.75 His signature is on all of these documents.
After all of this feverish activity, according to the Sal’ye Commission report, the $122 million of quotas that Gaidar had granted Putin’s KVS translated into two tankers of cooking oil delivered by a company called Tamigo, registered in Germany, with a Petersburg-domiciled general director, G. N. Misikov.76 As the press subsequently reported, the tanker “trundled into St. Petersburg on February 3, 1992. The arrival of this cooking oil was a sufficient triumph for Putin to write Gaidar on February 6 to inform him of it.”77
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