“That would be dangerous, especially at the moment as the government is ploughing through its reserves. Who knows how long they will last?”
“About twelve months they say.”
“And then?”
“Well if you listen to what Aleksandr Auzan said on TV … he’s head of economics at Moscow State University, ‘it’s the first thunder of a coming storm.’”
“You think it’s that bad?”
“Who knows? Some say the strikers will just sink into the Russian bog.”
Arm in arm they headed into the warmth of the mall which looked to Francis like just about any other European or American shopping centre. The difference being shoppers on tight budgets were looking for bargains, times were tough for many whose jobs were threatened as falling demand was beginning to affect most sectors of the economy. Fewer imports were already causing job losses and people were starting to talk, pointing to corruption at high level, which was nothing new, though more and more visible.
Ekaterina pulled up as a parking spot was freed.
T
ruckers strike chaos in Moscow
As long as ordinary Russians, like truck drivers, felt their standard of living was rising, they had accepted things unacceptable in Western Europe, but as inflation and unemployment rose, nostalgia for the old Soviet Union grew, when the state cared for all needs.
In general there was little sympathy among people for political and human rights activists, though in the case of the truckers - workers like themselves, there was a feeling of support, that is as long as the food and drink on their tables was not threatened.
“Could it become another Maidan?” asked Francis.
Ekaterina’s response was an outright no, that is unless living conditions got dramatically worse, though signs of discontent were beginning to appear. From Petersburg to Ufa and Siberia, teachers, bus and ambulance drivers, construction and factory workers walked out in protest against late payment of salaries and poor working conditions, demanding wage increases to compensate for inflation.
However, the ire of the workers was deflected by the state information and media apparatus towards external enemies and regional governments, away from Vladimir Putin.
Though the leader’s family and friends were hit by the collapse of oil and gas prices, a situation they had almost certainly never imagined, they would be the last to suffer. Those like the autocrat’s younger daughter Katerina and her new husband Kirill Shamalov, son of a co-owner of Bank Rossiya, would continue to live in grand style even if the value of their interests in gas and petrochemicals fell a few hundred million dollars or so.
Francis remembered the couple being presented to Michael Fitzwilliams by Tarasov at the exclusive Golf de Chantaco in the Basque Country, where they owned a magnificent nineteenth century style villa on the outskirts of Biarritz, overlooking the ocean.
Putin’s daughters were part of the former socialist country’s new aristocracy, not unlike the children and grandchildren of China’s leaders, all of whose families had amassed great power and vast wealth. The princelings were appointed to the boards of directors of banks and businesses of their choosing, in the same manner as had been the sons and daughters of the Czarist aristocracy.
Such stories did not prevent many Russians adhering to the ideas of the Bolshevik Revolution and its Communist leader Vladimir Lenin, especially those living in the far-flung corners of the former Czarist Empire the Soviets had inherited. They were the Communist die-hards who could be seen at every commemoration, bearing red flags and bedecked with medals, to mark the anniversaries of the Bolshevik Revolution.
To John Francis, all that would have not been so bad had it not been for Putin’s enormous capacity to meddle, which was out off all proportion to the economic importance of Russia. What empowered his willingness to play power politics was his nuclear arsenal, which had emboldened him to back Assad in Syria, followed by a visit to Egypt, his willingness to welcome Alexis Tsipras to Moscow on the eve of vital EU decisions, and his encouragement of the Argentinian president Cristina Fernández de Kirchner in the Falklands’ dispute. He was of course bolstered by the knowledge that those facing him, amongst them the EU’s leaders, were dispersed, indecisive and often incapable of making decisions.
WHO DUNIT?
After more than fifteen years in power, Vladimir Putin enjoyed an approval rating that was the envie of Western leaders, thanks to the influence of the state controlled media, more especially Gazprom-Media, on public opinion. The state media giant was created by Mikhail Lesin, Putin’s late press minister, who had broken the oligarchs hold on Russia’s media by masterminding a coup which left the vast majority of Russian TV channels and newspapers subservient to the Kremlin.
Lesin’s career in media and communications started when he piloted Boris Yeltsin’s successful presidential campaign in 1996. In 2001, as Press and Mass Media Minister, he forced Vladimir Gusinsky, the once-mighty Russian media magnate, imprisoned in Gusinsky Moscow’s notorious Butyrka jail, to cede control of his Media Most empire to the Gazprom Group. Then in 2005, Lesin created Russia Today, better known as RT, which Putin then appointed as the national broadcaster, transmitting Russia’s vision of the world and above all its version of the world’s news.
Mikhail Lesin was intimately involved in the efforts of Putin and Bank Rossiya to control Russian media and as Putin’s first media minister he successfully silenced critics of the regime.
As was often the case, Lesin resigned as CEO and chairman of Gazprom Media Holding, after he fell out with Yury Kovalchuk, a major shareholder in the company and close friend of Putin, to whom it was said he owed a considerable sum of money.
To escape the threat of vengeance in Russia, Lesin moved to the US with his friend, Victoria Rakhimbayeva, a glamorous Siberian model and one time flight attendant, there he owned a number of very upmarket properties and a mega yacht, the Serenity.
In November 2015, the 59-year-old, described as a multi-millionaire playboy by the press, was found dead on the floor of his room at the relatively modest Doyle Dupont Circle Hotel in Washington. Russian media reported Lesin had died of a heart attack, however, four months later, Washington’s chief medical examiner announced his death was caused blunt force trauma to the head with the presence of bruises on his neck, torso and limbs, in other words, ‘he’d had the crap beaten out of him,’ as one American journalist put it in colourful James Ellroy style.
THE MEN IN THE SHADOWS
In the 1980s, Mikhail Gorbachev introduced Perestroika, that is the restructuring of the Soviet political and economic system, allowing the first experiments in private enterprise, Yuri Kovalchuk, a physicist at the Ioffe Physical Technical Institute, founded an enterprise to turn its scientific work into commercially viable products, at the same time Gennady Timchenko, a former Soviet trade official, formed a cooperative to export products from an oil refinery on the Baltic, his company Guvnor went on to become one of the world’s largest independent commodity trading firm engaged in oil and energy markets
Yuri Kovalchuk and Nikolai Shamalov were founder members of Bank Rossiya, with thirty percent and twelve percent respectively, whilst Gennady Timchenko held a seven percent share through a Luxembourg registered company.
After the fall of the Berlin Wall, Vladimir Putin, then a KGB colonel in the DDR, returned to Leningrad his home town after his five year posting. In search of a job he contacted his former law professor at Leningrad State University, Anatoly Sobchak, who in the meantime had become a reformer and Chairman of the Leningrad City Council.
Under Sobchak - mentor and teacher of both Putin and Dmitry Medvedev – the ex-KGB colonel became head of Leningrad’s foreign relations committee just six months before the collapse of the Soviet Union.
This committee worked closely with newly establish entrepreneurs in contractual matters for the City of Leningrad where Putin’s fluent German helped in negotiations with foreign firms investing in the city. From this modest start the
foundations for what would evolve into a power base backed by a tight knit network of powerful business oligarchs were laid.
From his position Putin oversaw an injection of municipal aid to help the fledgling Bank Rossiya, a small bank with an exaggeratedly important name, which was on the brink of collapse. Yuri Kovalchuk, together with a group of his friends from the Ioffe Technical Institute: the physicists Victor Myachin and Andrei Fursenko, and Vladimir Yakunin, secured a small loan and bought the foundering bank.
At that time Putin together with Yakunin, Kovalchuk, Fursenko and Myachin became partners in The Ozero Cooperative.
Kovalchuk, then deputy mayor of Leningrad, could count on Putin’s support, who on Sobchak’s instruction opened an account at Bank Rossiya, where Communist Party funds, over seventy million dollars at that time, were deposited.
T
he Inner Circle
When Anatoly Sobchak lost his bid for re-election in 1997, Putin, a nondescript middling apparatchik, set off for Moscow. There he became a deputy chief of the Presidential Property Management Department, under the presidency of Boris Yeltsin. His rise was meteoric : deputy chief of Presidential Staff, head of the Federal Security Service, Prime Minister and then acting President, as did the fortunes of his friends and their modest bank.
Sobchak died suddenly of a heart attack in Kaliningrad when aiding Putin during his presidential campaign in 2000. Soon after a criminal investigation was opened for premeditated murder with aggravating circumstances after it was disclosed two of his aides suffered heart simultaneous heart attacks, pointing a probable contract killing by poisoning.
During his first years as President few Russians realized the men in Putin’s tight circle were becoming incredibly rich, amassing huge assets and accumulating extraordinary power. As for Bank Rossiya its holdings rose tenfold during Putin’s second term.
One of the members of this circle was Evgeny Roldugin who Putin met when they studied at the KGB academy in the seventies. At that time Evgeny introduced his brother Sergei to Putin who over the years was to become one of the Russian leader’s best friends, a fact witnessed by the number of times he is mentioned in Putin’s biography First Person. ‘We met and then never split. He’s like a brother. Back in the day when I had nowhere to go, I went to him and slept and ate at his place,’ Roldugin said.
The two men became inseparable pair getting into street fights and roaring around in a tiny Zaporozhets car singing songs and hanging out at the theatre with that ‘cute girl Luda’: Ludimila, Putin’s future wife.
Soon each went his own way, each following his respective careers : one in the world of music and the other in the Soviet power apparatus. Putin was posted as a KGB agent to East Germany and Roldugin became lead soloist at the Mariinsky Theatre and rector of St Petersburg’s conservatory.
As Putin rose to power, Sergei Pavlovich Roldugin made a name for himself as a classical cellist and conductor. He began studying the piano when only five years old before taking up the cello aged eight. His musical career commenced when he was awarded third place in the Prague Spring International Music Festival and in 1984, he was appointed principal cellist at the Kirov Opera Theatre Orchestra. He the went on to become professor at the St Petersburg Conservatory, professor of cello at the Moscow Conservatory and under Putin artistic director of the House of Music in St Petersburg, professor of cello at the Moscow Conservatory.
With Putin’s backing Roldugin became artistic director of St Petersburg's House of Music, a training academy for classical musicians, which the musician himself established, situated in a 19th-century palace that once belonged to Grand Duke Aleksei Aleksandrovich, a son of Czar Alexander II, under the patronage of his friend Vladimir Putin.
In September 2014, Roldugin protested he was not part of Putin’s circle of wealth and power: ‘I’ve got an apartment, a car and a dacha. I don’t have millions.’
How he came to be worth hundreds of millions of dollars was a serendipitous destiny for the ‘modest’ musician Roldugin described himself as. However, a glance at Putin’s family album, went a long way to explaining his good fortune: Vladimir Putin can be seen in a photo taken in 1985 holding his new baby daughter, Maria, next to his wife Lyudmila, and on either side of the couple are Maria’s godparents … Ira and Sergei Roldugin.
H
ow Bank Rossiya recycled money to Putin’s interests
A clue lay in the fact that the inner circle and the many firms which its members owned or were shareholders were all linked directly or indirectly to one single organisation: Bank Rossiya.
Kennedy had once accompanied Sergei Tarasov to the bank situated in a stern neoclassical Soviet era building on Rastrelli Ploshad, in the Central District of St Petersburg, about a mile from Nevski Prospecta. Founded in 1990, Bank Rossiya, a private bank, was long been linked to Putin after he had aided it at the time of the Sobchak city administration
Following the dissolution of the Soviet Union, Putin signed documents that gave ownership ownership of the bank to a joint venture created by Yury Valentinovich Kovalchuk and his associates. ‘Putin’s function was to make legal what would otherwise have been illegal,’ thus Kovalchuk, a physicist at the Ioffe Physical Technical Institute, became shareholder and board member of Bank Rossiya, which was to become Russia’s most powerful banks.
Strangely after Putin was elected in 2000, vowed to eliminate ‘as a class’ the Yeltsin-era insiders who got rich through their ties to the government, and he did, replacing them with his own.
In those early days Putin owned a dacha about one hundred kilometres from the St Petersburg, it was part of The Ozero1 Cooperative, an exclusive lakeside gated-community, in which Putin and the seven other owners, including Kovalchuk, held shares. Together they banked their money in a common account at Bank Rossiya. Today the Ozero group controls a large chunk of Russia’s assets: oil, gas, railways, construction, and the media.
An exclusive ski resort of Igora, set amid pine and birch woodland by a picturesque lake, not far from Ozero, had been developed by Ozon LLC, a company owned in part Kovalchuk and his son Boris, financed by Bank Rossiya. There Putin enjoyed the use of a tightly guarded residence called Zagorodnaya Sreda, registered to the Kovalchuks, concealed behind a high fence, conveniently close to the slopes where the man from the Kremlin could often be seen skiing on the slopes in the company of his bodyguards.
I
gora Ski Resort
Igora was the venue chosen for the wedding of Katerina and Kirill Shamalov in 2013, an opulent affair. Nikolai Shamalov, Kirill’s father, was an old Ozero partner of Putin’s and shareholder in Bank Rossiya.
In the presence of a hundred or so VIP guests, all of whom wore white scarves embroidered with the letters K&K in red, the young couple arrived in sledge drawn by three white horses, a prince and princess, she wearing a long pearl coloured dress and Kirill an elegant morning coat, for the very very private ceremony.
Just over a year and a half after the wedding, thirty two year old Kirill Shamalov borrowed more than one billion dollars from Gazprombank to acquire twenty percent of Sibur, one of Russia’s most important petrochemical companies.
Immediately after graduating, Kirill Shamalov had joined Gazprombank as legal adviser and his older brother as deputy director. Putin’s eldest daughter married a Dutch businessman, Jorrit Joost Faassen, who also held a high-level position at Gazprombank.
Bank Rossiya, commonly known as ‘Putin’s wallet’, was to become emblematic of Putin’s brand of crony capitalism, in which his loyal, originally impecunious friends, were transformed into billionaires and whose control of key sectors of the Russian economy has enabled Vladimir Vladimirovich to maintain his iron grip on power, and its voice: Gazprom-Media, which his pals also controlled.
In 2014 the US introduced a series of sanctions on Bank Rossiya and Kovalchuk, but Sergei Roldugin who owned nearly four percent of Bank Rossiya, which controlled assets worth an estimated eleven billion dollars, escaped the sanctio
ns, and the bank exploited the oversight to open secret accounts under his name.
Russia’s tragedy was Perestroika had given birth to kleptocratic regime, whilst Deng Xiaoping’s economic reforms, which had similar origins, transformed China into the world’s manufacturing centre. The result was the transformation of Russia’s economy into one dependent on commodity based exports, at the expense of its declining under capitalised industries.
1. ozero lake
RESURRECTION
Tarasov held many secrets, secrets that were better hidden, forever, secrets that could cost him his life. Fitzwilliams’ untimely death had been a warning and Tarasov knew his enemies would not hesitate to target his family.
He had been no ordinary member of the inner circle, his ties to the Bratva were hidden behind an impenetrable veil and his banking group had established an overseas empire that held the secrets of just about every major business in the Federation.
Sergei Tarasov if he had been evinced from the INI Moscow Bank, he was still the majority owner and chairman of IB2 Investment Holdings, an independent company headquartered in Luxembourg, which owned interests in oil and gas, asset management, commerce, insurance, retail trade, telecommunications and utilities.
The secrets he held were such that his untimely death would release a flood of documents that would be fatal to the Kremlin and its men. Thus, after a long moment of soul searching and reflection the Kremlin was forced to conclude the only way forward was through a face saving negotiation, in which Tarasov traded his promise of silence for his life and the lives of those close to him.
I
gora ski resort near St Petersburg
Tarasov’s sudden appearance in Paris came after weeks of behind the scene negotiations by Howard and his friends which were concluded in a secret meeting in Zurich, between Tarasov’s lawyers and those of the Russian Finance Ministry. An ultra confidential deal was negotiated whereby the banker ceded the totality of his Russian and certain overseas holdings in exchange for criminal charges and claims on his overseas assets being discretely dropped.
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