According to the charges, Putin appears to have used his connection with Twentieth Trust to make many transfers of funds to his friends, and for his own benefit, both in Russia and abroad. The investigation found that Twentieth Trust transferred money to other companies in eight countries, mainly Spain and Finland.208 Novaya gazeta’s investigation, in which they had access to case documents, concluded that Putin flew to Finland with Sergey Nikeshin, the head of the Trust, charging their expenses to a Twentieth Trust American Express card, and leading the investigators to ask, “Why is a private corporation paying for St. Petersburg City Hall officials?”209 Zykov said that money was used to build thirty houses near Torrevieja, including “cottages for Putin and Sobchak,” and he repeated the charge made in Spanish newspapers that Putin had crossed into Spain thirty-seven times on forged documents, “including when he was Director of the FSB.”210 Other investigators found that Nikeshin and “Putin banker” Vladimir Kogan had villas built for them; according to locals and Russian laborers in Spain interviewed by Novaya gazeta, the villas were built by Spanish contractors using Russian Army labor. After escaping to Portugal, one former colonel told a Russian reporter that they had not been paid, their passports had been confiscated, and they were constantly subjected to threats and blackmail: “I felt like a Russian prostitute in Turkey.”211 As I discuss in the next chapter, there were also separate allegations that Putin visited Spain on forged documents during the period 1996–2000 in connection with business meetings between himself, Boris Berezovskiy, and Russian crime figures. Both these sets of allegations would follow him into the presidency.212
Money was evidently also used to build a hotel in Spain under the cover of reserving it for veterans, and on one occasion at least, on February 9, 1996, Putin authorized $2,000 per person to be allocated “for recreation for veterans” and their families to stay in the hotel. It was alleged that city officials and their families and the leadership of Twentieth Trust instead took over the hotel on holiday in May 1996. The Novaya gazeta investigation quoted Case No. 144128 documents that concluded, “In a breach of contract . . . the list of persons traveling on holiday to Spain . . . included citizens who have relations neither to veterans nor to those active in science and art: Head of the Federal Treasury V. N. Karetin and two members of his family, . . . Chairman of the Board of Directors of Twentieth Trust R. V. Kamaletdinov and two members of his family.”213 Spanish intelligence (Superior Center of Defense Information, Centro Superior de Información de la Defensa, CESID) monitored Putin’s comings and goings from Spain and subsequently provided the information to Spanish newspapers in 2000, which revealed that “the CESID already knew about [Putin’s] earlier presence in Alicante where the current President spent some of his summers. In Torrevieja, they believe he participated in the development of apartments for Russian officials to spend vacation time in Spain when he was vice-mayor of St. Petersburg.”214, XV
In November 1995 Twentieth Trust received from Putin 415 million rubles (more than $90,000) for reconstruction of the Russian Orthodox Gornenskiy Convent in Jerusalem, which had already received funding the previous year. Security service personnel were dispatched to look at the convent; they did no work (according to Zykov) but submitted expense claims for $20,000.218 In thanking Putin “for providing financial assistance for the 1994–95 biennium,” the head of Twentieth Trust, Sergey Nikeshin, “respectfully asks you to provide us with financial assistance from the Mayor’s Contingency Fund for the continuation of the work.” At the top of the letter Putin simply wrote, “Agreed.”219
Here we have evidence, as shown in documents reproduced by Novaya gazeta and New Times,220 that the mayor’s money was being distributed without documentation, without proof that the reconstruction was on any kind of schedule or subject to any kind of contract—it was essentially used as a slush fund for city officials. In an interview with the Mother Superior of the convent, she confirmed that after the collapse of the USSR, the convent was in dire need of repairs, not having had any done since prerevolutionary times. It lacked running water, a telephone, and an inn for pilgrims, and the cathedral was unfinished. Only in 1997, when Patriarch Aleksey II visited the convent, was substantial restoration work done, according to her account.221 Not only is there no indication that any work was done at this time on the Gornenskiy Convent by Twentieth Trust, but Novaya gazeta’s conclusion is that the convent’s money was actually diverted to build two thirty-two-apartment hotels called La Paloma in the Spanish resort of Torrevieja, near Alicante, for which Nikeshin received more than half a million dollars for the design and documentation stage alone.222
Local Spanish company registries show that the Twentieth Trust Company, SL (Sociedad Limitada), was incorporated in Torrevieja on July 21, 1994 (company code B03959467, address 20 2 Glorieta Ramón Gallud, 03180 Torrevieja, Alicante, Spain), and operated until at least 2004.223 Company reports show that funds were transferred by Nikeshin into Twentieth Trust each year from 1994 to 1997. Novaya gazeta subsequently summed up the amounts that had been transferred from St. Petersburg city coffers to Twentieth Trust and concluded that while only $3 million had found its way into the property market in Spain, “$22.5 million in total had been ‘stolen’ from St. Petersburg by Anatoly Sobchak’s team.”224 Shleynov puts the estimate as high as $28 million (see the chart on page 149). Investigator Zykov, whose own account is in accordance with this, concludes with this chilling—for Putin—statement: “All documents on this fraudulent affair are safely hidden in the 117 secret volumes. However, copies of the documents, tracking who had endorsed the allocation of money, and for what purpose, . . . I have passed to ‘Radio Liberty.’ ”225 I confirmed that Radio Liberty did receive these volumes.
In another case, at the end of 1993, Novaya gazeta claimed that Putin granted a loan “as an exception” of 2.5 billion rubles to Twentieth Trust for construction in St. Petersburg of a business center called Peter the Great at the unusually favorable rate of 6 percent APR (the average rate then was 200 percent), despite the fact that the only collateral the Trust posted was fifty-five cars of various models. Investigators found that the loan was not repaid, the business center was not built, and only twenty-two cars were now offered as collateral!226 Nikeshin also received a credit of $1.3 million from the mayor’s office in 1993 toward the construction of a forty-story skyscraper in St. Petersburg that never came to pass despite having been approved by the mayor’s office.227
Twentieth Trust: How Did the Money Flow?
Source: Roman Shleynov, Novaya gazeta, October 3, 2005.
Twentieth Trust also was an official cosponsor of the White Nights Festival, but investigators found that the money was used to buy more Spanish real estate and purchase Finnish prefab homes.228 The chief controller of the Ministry of Finance of the Russian Federation in St. Petersburg, V. Kabachinov, concluded, “On January 1, 1997, the debt of the corporation [Twentieth Trust] to the city stands at 28,455,700,000 rubles” ($1.1 billion).229
Matt Bivens of the Moscow Times, in writing about Twentieth Trust, interviewed the Yabloko Party’s Igor Artem’yev, who came in as head of the city’s finances after Sobchak (and Putin as his campaign manager) lost the 1996 mayoral elections. Bivens quotes Artem’yev: “ ‘The city suffered an enormous loss here. . . . This was a criminal story or at least a story of dishonest intentions.’ Artem’yev was aghast at the shape in which he found the city’s finances. He sued Twentieth Trust and won. (But, he complains, for some reason Governor Yakovlev won’t go collect the money.)”230
Moscow’s New Times investigation added, “CEO Nikeshin could easily call the next president of Russia and report to him the need to transfer several million dollars for the reconstruction of an Orthodox church in Greece. Medvedev controlled this transfer. The future of the money is unknown. The money went through the famous Bank Rossiya owned by the Koval’chuk brothers. [Yuriy Koval’chuk was a founding member with Putin of the Ozero Cooperative.] The office was located on the first floor of th
e Smolny Institute [city hall], and as sources tell New Times, investors could get approval from Vladimir Putin for their project on one condition: everything had to be done through Bank Rossiya.”231 New Times drew attention to the fact that “in 1999, in connection with the activities of the corporation [Twentieth Trust] a criminal case No. 144128 was brought, but on August 30, 2000 (after the arrival of Vladimir Putin in the Kremlin) it was closed. Soon, one of the investigators who worked on the case of this corporation Oleg Kalinichenko retired to a monastery. Another, Andrey Zykov, was sent into retirement.”232 Other investigators also have asserted that Medvedev was involved in the flow of money out of the country, with Putin working with Nikeshin through Twentieth Trust and Medvedev responsible for organizing the financial flows from the Mayor’s Contingency Fund. Having said that, it is remarkable how seldom Medvedev is mentioned in these schemes compared with others, particularly Putin.233 The chart on page 149, prepared as a result of extensive investigation by Novaya gazeta’s Roman Shleynov,234 indicates what he believed to be the flow of money.
Even after Putin went to Moscow, this case would have to be dealt with and would continue to haunt both Putin and Kudrin. Marina Litvinovich, who had been one of Putin’s Kremlin image-makers and who worked on his 2000 campaign, wrote in 2012:
Economics and Finance committee head Kudrin and deputy mayor Vladimir Putin are also named in criminal case No. 144128 initiated in 1999 in connection with Dvadtsatyy Trest (20th Trust) Construction company operations (Trust head Sergey Nikeshin was a member of the St. Petersburg Legislative Assembly). The investigation used documents from a 20th Trust audit by the RF Ministry of Finance Audit Department, which was conducted on the instruction of the municipal administration for combating economic crime. According to audit documentation, Kudrin signed agreements in order to secure several million dollars in government loans for 20th Trust, which were then wired to over 20 companies in Spain, Finland, Sweden, Germany, Belgium, Ireland and the U.S. The investigation ended when Vladimir Putin was inaugurated President of Russia, with lead investigators saying they experienced unprecedented pressure [to close the case].235
These charges were very serious. Between Sobchak’s involvement in the corruption scandal and Putin’s own exposure in yet other cases, it must have occupied a lot of Putin’s time to get the investigations stopped. But stopped they were. Criminal Case No. 144128 was terminated by order of the procurator general on August 30, 2000, but not before Kalinichenko came under “very serious pressure,” according to Zykov, so serious that he abandoned all his files and joined a monastery, telling Zykov that “he had got tired of all those things; the materials in which such surnames were mentioned were doomed anyway.”236 Zykov was also forced to retire, and then sued Putin. But the court received a letter from the Presidential Administration asserting that a sitting president could not be a party to a suit. Ultimately Zykov gave the lengthy interview cited earlier and also provided an extensive nine-part commentary that was posted on both the Russian and English versions of YouTube.237, XVI
Putin and “the Sobchak Case”: Criminal Case No. 18/238278–95
Knowledge about the charging of commissions in St. Petersburg and other instances of gross malfeasance had reached Moscow and was considered “so serious,” according to Zykov,238 that in December 1995 FSB director Mikhayl Barsukov and Interior Minister Anatoliy Kulikov joined with Procurator General Yuriy Skuratov in the creation of “an inter-ministerial operational investigative group for the investigation of kickbacks by officials at the City Hall of St. Petersburg,” which resulted in Criminal Case No. 18/238278–95.239 Underlining the gravity of the charges, the twenty-person team was led by Leonid Proshkin, deputy chief of the Investigation Department of the Procurator General’s Office in Moscow and a renowned investigator.
Many in the top leadership in St. Petersburg were under investigation for “taking bribes” and “abuse of power,”240 including Sobchak, Putin, Kudrin, and Oleg Kharchenko, chief architect of the city and head of its urban planning committee, who was also on the advisory board of SPAG and would go on to be the chief architect of the Sochi Olympics.XVII, 241 The allegation was that Sobchak had signed Executive Order No. 825-r giving 350 million rubles of support from the city budget and other benefits to the real estate company Renaissance, which in turn gave apartments to city officials, including Sobchak, Putin, Kharchenko, and others.XVIII Despite the investigations that swirled around him, Putin was promoted to first deputy mayor in March 1994, only fueling the view that Sobchak was also involved in this corrupt business.
I have already discussed how Sobchak was implicated in handing out apartments on Vasil’yevskiy Island to his friends and family, including Putin. The procurator general charged Sobchak with corruption for his role in this apartment exchange; when he was being questioned he suffered a health crisis, had to be taken to the hospital, and from there fled the country, apparently with Putin’s assistance. The prosecutors did not pursue the case, and once Putin became prime minister (and succeeded in getting rid of Skuratov), he was in a position to squash the case. When he was acting president, Putin acknowledged that the heads of these three agencies—the FSB, MVD, and Procurator General’s Office—had appointed the commission that came to St. Petersburg and “opened up several criminal cases,” although he contended that Sobchak was at least initially only a witness and not under investigation.244
Other Cases against Putin
One of the most persistent contradictions in statements about Putin is the view that he never directly took a bribe but that he surrounded himself with many figures from the criminal, business, and governmental world who did. Of course, Russia was full of people at the highest level who were immersed in the corrupt politics of the 1990s, and it is hard to imagine anyone surviving and getting ahead without taking a bribe. Since much of our view of Putin’s incorruptibility comes from Boris Berezovskiy, who testified that this was the feature about Putin that most struck him, it should be taken with a grain of salt, given that the British High Court judgment against Berezovskiy in his lawsuit with Roman Abramovich characterized him as someone who regards “truth as a transitory, flexible concept.”245 It is far more likely that Berezovskiy was impressed with the lengths to which Putin would go to get Sobchak out of Russia, saving both Sobchak and himself at the same time.
More impressive still is the list of close Putin allies who were mired in one corruption scandal after another. Many of them are mentioned above. In addition there is the case of Leonid Reyman. Reyman would come to be identified as one of the most corrupt ministers in Putin’s government not only by Russian and Western investigative journalists246 but also in Western legal circles. Yet he remained a close associate of both Putin and his wife, Lyudmila.
In Germany both civil and criminal probes were launched against a Danish lawyer and four executives of a German bank, Commerzbank,IX alleging they had participated in laundering more than $150 million of suspicious funds. According to the Wall Street Journal, they were alleged to have “assisted former Russian telecommunications minister Leonid Reyman in selling telecommunications assets he allegedly controlled in offshore companies, while concealing who the true owner was. From 1996 to 2001, the German bank held the telecom assets in trust for the Danish lawyer, Jeffrey Galmond. Prosecutors contend Mr. Galmond acted as a front for Mr. Reyman, who, they say, had converted telecom businesses from state ownership to that of a number of foreign companies that Mr. Reyman allegedly set up and controlled after the collapse of communism in the 1990s.”247 German prosecutors, having started the investigation in 2005, ultimately had to drop the case, with the German executives paying nominal fines. The statute of limitations had run out, and the Russian procurator general had written a letter concluding that no violation of Russian laws had taken place. As such, according to a German court spokesman, under German law at that time, Reyman could have been convicted of money laundering only if he had committed a crime in Russia.248
In Switzerland t
he International Court of Arbitration of the International Chamber of Commerce, in a case featured on the World Bank’s Stolen Assets Recovery website, “found that Minister Reyman of the Russian Government was the beneficial owner of IPOC [International Growth Fund Limited (Bermuda)] and that he committed criminal acts under Russian law.”249 A court in the British Virgin Islands deemed that IPOC documents had been faked, and IPOC and its associated firms “pleaded guilty and were convicted of two counts of perverting the course of justice” and ordered to pay $45 million in costs and fines.250 Reyman sought to avoid paying the fine by claiming that his lawyer was the actual owner, but the BVI courts agreed with the Swiss arbitration that in fact “IPOC’s beneficial owner was Mr. Reyman and IPOC was [the] center of a scheme to conceal Mr. Reyman’s diversion of Russian state assets.”251 This activity started as early as 1994, when Telecominvest was formed in St. Petersburg, when the state owned 95 percent and Reyman’s lawyer owned 5 percent. By 1995, according to the World Bank summary of the arbitration, the state share had shrunk to 49 percent and a Luxembourg company named First National Holding owned 51 percent. First National Holding’s stake grew to 85 percent, and Reyman rejected claims that he owned this stake and continued to assert that it was in fact owned by his lawyer.
Lyudmila Putina was said to have worked for Reyman’s Telecominvest in 1998–99, although German investigators were quick to point out that “it would have been impossible to call the Moscow branch an office. It was more likely a place where communication specialists who came from St. Petersburg held their meetings. . . . Lyudmila Putina was the only employee. She answered phone calls and organized meetings. There wasn’t any political background in her work.”252 Nevertheless it is extraordinary that she would work in the office of someone under such scrutiny since she would have had many other choices of places to work. And Putina would continue to do joint public events with Reyman, opening communications fairs and the like as late as 2007, long after these investigations had been launched and had become public.XX
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