Baltik-Eskort operated openly as a private security service to protect Putin, Sobchak, and other high-ranking officials. It also allegedly acted as a liaison with the criminal underworld in St. Petersburg, including both Aleksandr Malyshev, reputed head of the Malyshev criminal organization, and Vladimir Kumarin, the reputed head of the Tambov crime organization. Some of the agency’s employees were members of criminal groups and, like Aleksandr Tkachenko, the alleged leader of the Perm organized crime group, were accused of being involved in the assassinations of political figures at this time and subsequently, including the “death by Mercedes” of a Duma member and head of the rival Christian Democratic Union on December 9, 1995. ITAR-TASS reported that Vitaly Savitskiy was riding in a car that “belonged to the St. Petersburg mayor’s office” when its driver made an inexplicable U-turn, allowing a Mercedes owned by Baltik-Eskort and driven by Tkachenko to ram the back passenger side of the car at full speed, killing Savitskiy immediately. The driver, who suffered only minor injuries, was taken to St. Petersburg’s military hospital, where inexplicably he died “of shock” a week later, prompting the police to close the case for lack of witnesses, despite widespread coverage from the Russian and foreign press.120
Some but by no means all of these gambling companies were controlled by ex-KGB, and as such they pushed hard to get the Russian mafia to submit to their authority. They shared common interests in legitimizing gambling in St. Petersburg while also benefiting from it financially. On June 26, 1991, while the USSR still existed, the Council of Ministers had issued a decree requiring firms engaged in gambling to be licensed by the Ministry of Finance.121 In St. Petersburg only one casino had complied, the Admiral; in the 1993 opinion of the St. Petersburg Procuracy, all the rest were running illegally, under the cover either of Putin’s licensing, via a special permit, No. 274 of May 27, 1992, signed by Putin, or of Neva Chance.122 Putin also clearly interacted with certain leaders of organized crime, including reportedly the leaders of the Tambov and Malyshev gangs. Such cooperation among new entrepreneurs, mafia, and political elites was typical of Russian society more widely at that time.123
Several reputed members of the Tambov and Malyshev gangs became acquainted with Putin at this time. Gennadiy Petrov and Aleksandr Malyshev, Novaya gazeta reported, were sent abroad by Putin’s KVS, along with Vladimir Kiselyev, who headed the White Nights Festival Association of St. Petersburg, which was registered in January 1992. Reputed crime bosses who might not have easily received visas to Western countries now arrived as members of official cultural delegations and did their business abroad under the protection of these delegations. They proceeded to sit on the board of these festivals along with the city’s cultural elites.124 Kiselyev’s association claimed to be the result of two founding joint ventures, the Music Center of Kiselyev, whose “commercial director” was Aleksandr Malyshev, and Petrodin, whose head was Sergey Kuzmin. Kuzmin was an associate of Gennady Petrov, and was until 2007 listed as one of the owners of the house on Stone Island where Petrov held court as one of the leaders of the St. Petersburg mafia. Kiselyev was the nominal head of the White Nights Festival Association, but it was widely reported that he worked for Petrov.125 Their KVS travel documents could have been obtained from Putin himself or the head of the administrative apparatus for the KVS, Igor Sechin, or Vladimir Kozhin, who in March 1993 became the director general of the St. Petersburg Association of Joint Ventures, and then from 1994 to 1999 (after Putin had gone to Moscow) the chief of the Northwestern Center of the Federal Directorate for Currency and Export Control of Russia. As discussed previously, Kozhin went on to become the head of the Presidential Property Management Department under Putin, and Sechin became the deputy prime minister and head of the silovik faction in the Putin regime. The journalist Vladimir Ivanidze, who said he had seen Malyshev’s travel application, asked him whether he had ever been found guilty of a crime. Malyshev answered, “Not prosecuted,” despite having served two sentences for murder.126 As an annual event, the festival served the city leaders’ purpose of showcasing the city and the mafia’s purpose of allowing them to travel abroad on “cultural business,” mixing city money, cultural money, and illicit money at the same time.127
The breadth of Petrov’s reach into city affairs was such that one member of the Japanese mafia, known as Kinishi, claimed with great respect that Petrov had told him that his influence in the city government was sufficient that he was able to “change any contract, particularly contracts with foreign investors.”128, IX Kinishi stated that his friend in one of the casinos was denied all the money from his investment because Petrov was able to get access to the contract in the tax authorities’ office and change it to exclude him, even though he was an original investor.130 During much of this period Viktor Zubkov was head of the St. Petersburg Department of State Tax Inspection, and Putin as deputy mayor oversaw the Registration Chamber, supervising all licenses, contracts, and registrations. It was therefore within their power to bring charges on behalf of foreign investors, but none were brought, except, for example, when the legitimate owners were pushed out in favor of those connected to Putin. This occurred in the transfer of ownership of the Grand Hotel Europa from Swedish owners to Germans connected to Putin, after the tax authorities levied a bill greater than the total cost of the structure and forced the owners to sell.131
Thus these changes became legal because the St. Petersburg authorities provided a fig leaf of legal respectability through their joint stock and licensing activities. It is astonishing that Putin would claim that the city didn’t receive any benefit from this extraordinary windfall of partnership with criminal elements. However, no one has discovered where the money went. All efforts to investigate the situation after Sobchak lost power in 1996 resulted in people dying or in prosecutions being shut down, since Putin and the others were now in Moscow and in a position to suppress investigations, according to the chief investigator involved.132
It is worth restating that in 2008, when Spanish officials arrested Petrov and Malyshev on allegations of money laundering, racketeering, and tax evasion (in Operation Troika), they stated that these elements began to set up a permanent presence in Spain beginning in 1996—the year Putin went to Moscow. They became so influential in Spain that Petrov owned a house next door to the sister of King Juan Carlos and near Russian ministers and politicians, including the minister of communication and a long-standing Putin friend, Leonid Reyman, and Duma deputy Vladislav Reznik.133
While Petrov and Malyshev were under arrest in Spain, Kiselyev continued to play a central role as a “Kremlin entertainment entrepreneur.” Despite his association with those who were under investigation by Interpol, he was appointed by Vladimir Kozhin, head of the Presidential Property Management Department, to head a new company, the Federal State Unitary Enterprise, which Kozhin described as maximizing the use of Kremlin palace performance spaces that were underutilized. Kozhin talked about the St. Petersburg roots of his relationship with Kiselyev and their subsequent falling-out: “I knew Vladimir for a long time. . . . He organized the White Nights festival in St. Petersburg. . . . Overall his work with us started well, but then some unacceptable things happened. They started working largely for themselves. . . . He can do anything he likes, . . . but not under the umbrella of my department. The enterprise was liquidated . . . , and he was launched into the open sea [pustilsya v svobodnoye plavaniye].”134
But Putin did not abandon him. Kiselyev emerged as the key figure behind the Federation Fund concert, where Putin was introduced to such Hollywood celebrities as Goldie Hawn and Sharon Stone. And he was responsible for the famous fundraiser for cancer on December 10, 2010, at which Putin sang “Blueberry Hill.” It turned out that the Fund was legally registered only eighteen days later, on December 28,135 and that the funds raised were distributed only after mothers of sick children complained of fraud, leading the Russian media to take up the case.136 A very sheepish Kiselyev appeared in a press conference protesting about misunderstand
ings. Again Putin did not abandon him, appearing at a subsequent antinarcotics rally Kiselyev organized in Kaliningrad and another Hollywood-star-studded event in Moscow.137
As quoted earlier, Putin regarded his experience regulating the casinos in St. Petersburg as a mistake: “While we were counting up the profits and deciding where to allocate the funds—to develop the city’s businesses or support the social sector—they were laughing at us and showing us their losses.”138 Undoubtedly the casino owners made money in St. Petersburg as they do everywhere, including by skimming their profits in cash and declaring losses to avoid taxes. But Russian journalists who investigated these affairs also pointed to the role of Baltik-Eskort, the private security company that provided armed security for Putin and Sobchak and was said to be involved in collecting the chyornyy nal (black cash) that “make[s] the world go round” in St. Petersburg.139 Baltik-Eskort was believed to be the cut-out that dealt with organized crime for the mayor’s office. The company’s owners, Roman Tsepov and Viktor Zolotov, “worked with the mayor’s office to fulfill orders that could not be put in the hands of official law enforcement agencies.”140 The fact that Putin has kept Zolotov by his side ever since—raising him in May 2014 from head of his personal security detail to first deputy minister of interior and commander of the Internal Troops—underlines his view of Zolotov as someone who is absolutely loyal to him personally.
Putin and the St. Petersburg Real Estate Holding Co.
In April 1999 the German Federal Intelligence Agency, BND, completed an investigation and issued a report on money laundering in Liechtenstein in which it was alleged that a previously unknown Russian-German firm, the St. Petersburg Real Estate Holding Co. (SPAG), was heavily involved both in laundering Russian money and in laundering money from other sources, including the Cali drug cartel. Putin was listed as a member of the advisory board of SPAG. On May 13, 2000, only four days after his inauguration, police in Liechtenstein, acting on the BND report and working with their Austrian colleagues, arrested the Liechtenstein founder and leader of SPAG, Rudolf Ritter. Ritter also happened to be the brother of the economy minister of the principality, population thirty-five thousand. Copies of the report were obtained first by Le Monde and then by Der Spiegel and other European, American, and Russian newspapers. Only on May 23 did the SPAG website state that in anticipation of his inauguration, Putin had stepped down from the board.141 So what was SPAG, and what did it do for and with Vladimir Putin?
From the beginning SPAG connected Putin with Vladimir Smirnov, and through Smirnov, with Vladimir Kumarin. Putin had already had business dealings with Smirnov in 1991, when he signed a contract with Smirnov’s Nevskiy Dom for the export of raw materials, as discussed earlier. Smirnov claims they had actually met before that, in Frankfurt in 1991, “where the question of attracting the first private investors to our city was decided.”142 In 1992 Putin and Smirnov were part of a trade delegation to Frankfurt, as a result of which, on August 4, 1992, they, along with partners from Germany and Liechtenstein, registered the St. Petersburg Real Estate Holding Co.143 From the beginning, according to German commercial registry documents obtained by Newsweek, Putin was listed as a member of the advisory board,144 along with three other St. Petersburg city officials, including German Gref.145 Mayor Sobchak wrote a letter to SPAG, saying, “We support you politically and administratively,” that was posted on the SPAG website.146 The company issued an IPO in Frankfurt in 1998 (WKN 724440, ISIN: DE0007244402) and sold shares for almost 500 euros per share before they plunged to 35 euros in 1999 and then to .64 euros147 when German and Liechtenstein police raided the company offices as part of a money-laundering investigation.148
As far as can be determined, the money-laundering scheme at SPAG worked in the following way: Money from all kinds of licit and illicit sources flooded out of Russia into a variety of Western banks and offshore accounts in the early 1990s. But these Russians also wanted to use this money to attract other money into Russia, so the question was how to launder it, use it as a honeypot to gather more investors, and then repatriate it so that it could be used to make legitimate property purchases inside Russia that would secure and legalize the wealth of the originators. The possibility also existed of purely scamming Western investors. As head of the Committee for Foreign Liaison, Putin could issue licenses for export that would allow foreign currency and commodities to pass through the border and issue import licenses for newly clean money to come back in. There were many who agreed with Boris Berezovskiy’s claim that “as stated in the press, the ‘roof’ [krysha] of SPAG and Ritter personally in Petersburg was Vladimir Putin,”149 and it is entirely reasonable to assume that, at a minimum, Putin lent his name to SPAG in order to increase money flows into SPAG and then into St. Petersburg and to lend the whole exercise respectability. Putin and Yuriy L’vov, the founder and president of the Bank of St. Petersburg, set up the first foreign currency exchange bureau—evidently inside the mayor’s administration offices at Smolny itself—in 1991 to facilitate these transactions, but also to garner further huge commissions.150, X And as the Sal’ye Commission documented, there was hard evidence that the city attached a fee, ranging from 25 to 50 percent, in return for granting licenses. The KVS could also serve as a co-contractor, so that dividends and profits would be paid directly to the KVS for use by the city and its officials on an ongoing basis. Putin’s KVS managed a massive flow of money, since in Russia in the early 1990s there were still severe foreign exchange controls. And given St. Petersburg’s position as a port and frontier city, it played a very significant role in the overall exodus of money—foreign trade licensing being a key first step in capital flight at this time.153
The reputed head of the Tambov crime gang, Vladimir Kumarin, known throughout Petersburg at this time as “the Night Governor,” got involved in two subsidiaries of SPAG, called Znamenskaya and Inform-Future. Both were licensed by Putin’s KVS in July 1994,154 and in both of them Smirnov was listed as a co-owner. Kumarin himself estimated that Putin had signed between eight hundred and eighteen hundred contracts during the early 1990s.155
The city of St. Petersburg was reported to have an initial 20 percent stake in SPAG,156 and in December 1994 Putin signed an order giving Smirnov the right to vote “our” (the city’s) shares. This was revealed in BND records leaked to Newsweek,157 reprinted in Jürgen Roth’s account of the role of Russian dirty money in Germany,158 and reconfirmed in market analyses of the company, which shows that by 2000 the city’s share had grown to 27.58 percent.159 To safeguard and guarantee the deals, St. Petersburg officials were put on the advisory board. At least two German directors of the company confirmed that they had met Putin at least seven times in Frankfurt or Russia in the early 1990s.160 But apparently, and perhaps unknown to the German banks that were involved, the company was used from the beginning as a vehicle for significant money laundering by Kumarin and the Tambov crime gang.161 Writing for the St. Petersburg Times, Catherine Belton comments on the international press coverage of SPAG and on a book published in Germany by the investigative journalist Jürgen Roth: “Roth traces the German investigators’ probe to two individuals, Boris Grinshtein and Peter Haberlach, both of whom are under suspicion of being the Tambov group’s point men in Germany, according to his sources in German law enforcement. Investigators believe that one of the ways funds were laundered through SPAG was via share issues in the company. At least two companies connected to Grinshtein and Haberlach are pinpointed by Roth as having taken part in such deals. In December 1994, a firm called E. C. Experts Ltd., which was then headed by Grinshtein, bought shares in SPAG for 500,000 German marks. . . . Then in July 1995, it took part in another share issue, buying up 13,000 shares for 110 Deutschmarks each. . . . In October of that year, again according to Roth, [Rudolf] Ritter signed off on the sale of 10,000 shares for 140 marks each to a firm called ICI International Consulting Investments. Haberlach is a director of E. C. Experts and is also under investigation in Hamburg on allegations of human t
rafficking and running a prostitution ring. Haberlach’s brother, Roth writes, is married to the former wife of Kumarin. Roth cites the BundesKriminalAmt (BKA), or German police, as saying it suspects ‘ICI International Consulting Investment to have played a central role in founding SPAG and its affiliated companies and that through this company certain people also wielded influence over the chain of money flows into SPAG. The firm Euro-Finanz also appears to have played a similar role.’ In what could be a vital link between the SPAG case and the case against Ritter for laundering Colombian drug money, Euro-Finanz is also identified in a Liechtenstein prosecutors’ indictment against Ritter, a copy of which has been obtained by the Moscow Times.”162 At 1.6 Deutschmarks to the U.S. dollar, these total share purchases were worth about $1.7 million.
In 2000 SPAG’s website proclaimed that the company had been given the right to be the only foreign investor in the real estate sector in St. Petersburg that could take the profits from its investments out of the country (“habilitée à récolter des investissements”).163 Such a move would have needed political capital and approval by the board, including Putin. Even in 2012 the website still maintained that SPAG was the only Western company authorized to invest in real estate and development projects in key strategic areas of St. Petersburg. So if someone wanted to invest in St. Petersburg and take his profits out of the country, SPAG would be the ideal vehicle. The investigators charged that deals were put together in which money from Russian organized crime was commingled with Western money, some of which was also being laundered from illicit activities, including from Colombia’s Cali cartel. But some of it was legitimate investment from Western sources impressed with the fact that Putin was on the company’s advisory board. German bankers were quoted as saying that they had agreed to work with SPAG in the 1990s and had handled its IPO partly because Putin was on its advisory board. The spokesman for the head of the German Baader Bank, which by 2003 owned 30 percent of SPAG, claimed that it had organized the firm’s initial IPO in 1998 because “we thought it was good business if there was someone like Putin on the board.”164
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