Putin's Russia. The dangerous illusion of independent and western oligarchs(5)
I decided to dedicate one more essay in the "Putin's Russia" series to Russian oligarchs because of one piece of news that attracted much less attention in Lithuania and internationally than it warranted: the former foreign minister of Sweden and one of the fiercest critics of President Valdimir Putin, Carl Bildt, accepted a consulting job at LetterOne, a Luxembourg-based company set up and run by Russian oligarchs.
Even after he retired from government posts, Bildt continued to be a rallying voice in the West for countering threats of the Putin regime. He is also a member of Ukraine's International Reform Council, therefore his decision to consult one of Russia's wealthiest oligarchs Mikhail Fridman and his colleagues at Alfa Group naturally begs a question that was perhaps best summed up in a tweet by Lithuanian foreign policy observer Vykintas Pugačiauskas: "Is Carl Bildt following in Schroeder's footsteps?"
There was hardly any serious discussion about this in the international arena. Still, two of the most reputable Russia experts - whom I respect very much - Edward Lucas and Anders Aslund came to Bildt's defence.
Reacting to comparisons between Bildt and the former chancellor of Germany who accepted a job in the management of Gazprom, Lucas tweeted: "difference -- Gazprom is epitome of Putinist business. Alfa is closest Russia has to normal one."
Aslund put it even more forcefully: "Alfa has moved out of Russia & stayed out of politics. In what way has Carl Bildt does anything wrong?"
What is the role of oligarchs?
I cannot agree with these statements from two of the best-informed Russia experts. Sustained research into the Russian elite and Putin's power structure suggests that belief in Russian oligarchs who are "at least partially independent", "western" or "engage in normal business" is a dangerous illusion that sometimes blinds us to some serious threats.
Writing in the New York Times last December, Russian-American journalist and author Masha Gessen expertly summed up the reason why such hopes are self-deception: "There are no oligarchs anymore." Gessen explains that soon after Putin came to power, he dealt with all oligarchs who tried to challenge him in any way and now there is no one left who can do it.
I think Gessen's conclusion is very illustrative, albeit only partially true. The problem is that all (or almost all) oligarchs in Russia were there, in some capacity, when Putin was building his regime, therefore it would be simply naive to assume that they can be "independent" or "western", let alone involved in "normal" (rather than Putinist-criminal) business. The case of Alfa Group, one of the biggest Russian business empires, is quite telling in this respect.
In July 2014, Britain's The Times ran a story about Prime Minister David Cameron being under pressure to introduce targeted sanctions against Putin's regime due to aggression in Ukraine and to punish Russia's oligarchs. Mikhail Fridkin, the face of LetterOne and Alfa Group, was identified not only as the principal target for such sanctions but also as one of the pillars of Putin's regime, along with Lisher Usmanov and Roman Abramovich.
According to The Times, such an assessment was based on recommendations from reputable think tanks like the Henry Jackson Society, the Peterson Institute for International Economics (which at the time included Aslund himself among its staff) and the Center for Strategic and International Studies. I will try to explain below why I think these think tanks make a better argument than Lucas and Aslund. However, I believe that we must talk not just about Fridman, but about other owners of Alfa Group, too, as well ass the company's structure and origins.
Who's Putin's godfather?
There is little point in discussing LetterOne, whose board is now being advised by Bildt, separately. Even without delving too much into the legal aspects of its establishment and intricate links among its owners, this company should be seen as part Alfa Group, the Russian business empire founded specifically for expansion in the West.
In Russia as well as in the West, Alfa Group is primarily associated with Russia's second richest man Fridman (his net worth is estimated, by various sources, at 15 to 18 billion US dollars). However, to untangle this business empire, let us first consider another co-owner, Pyotr Aven, often dubbed the company's brain (although his role is possibly even bigger than that).
It is publicly known now not just in Russia but internationally as well that Aven is personally linked to the origins of Putinism. His role is comprehensively discussed in Karen Dawisha's book "Putin's Kleptocracy: Who Owns Russia?".
In the book, Dawisha not only notes close ties between Aven and Putin, but also describes in detail the beginnings of the Russian president's and his friends' road to power. Everything started with Putin's post at the Mayor's Office of Saint Petersburg and his various swindles there. Chief among them had to do with the Foreign Relations Committee, run by Putin at the time, which was granted the mandate to distribute export licences and quotas at its own discretion.
A massive investigation, the so-called Salye Report, was opened in 1992 into Putin's shady affairs at Saint Petersburg's mayor office which did great harm to the city but helped Putin and his gang to amass some starting capital and gain stature. Because of the report, the then mayor of Saint Petersburg and Putin's boss, Anatoly Sobchak, even had to explain himself in Moscow.
The takeaway from this episode, however, is that the man who granted Putin the exclusive and far-reaching right to run Saint Petersburg as he wished was none other than Pyotr Aven, the then minister of foreign economic relations. Moreover, when Russia's most senior inspector, President Boris Yeltsin's Control Administration chief Yury Boldyrev asked Aven, in writing, to refrain from granting the exclusive right to Putin, at least until the investigation was over, Aven ignored the request.
In March 2012, Aven was frankly asked to comment on the story by journalists at the oppositional TV channel Dozhd. The oligarch's response was more than surprising - he did not consider the letter from Russia's most senior inspector - and one relating to a serious scandal - any different from piles of correspondence he received as a minister. Aven said he did not remember a letter from Boldyrev - he only remembered that he turned to Saint Petersburg Mayor Sobchak for advice.
Interestingly, it is Aven who helped springboard the rise of Putin and his gang. When Sobchak lost his power in Saint Petersburg in 1996, Putin might have been marginalised along with his former boss, but, as the word in Moscow has it, Aven made sure that he was invited to the Kremlin.
These rumours were also addressed in the Dozhd interview, where Aven was asked if they were true. The oligarch's response was quite unconvincing: he said he had not had enough administrative resources to secure Putin an appointment, although he admitted he knew the future president.
As a matter of fact, Aven had known Putin well before the scandal in Saint Petersburg. That is another reason to doubt Aven's assertion that he trusted Sobchak's judgement against Boldyrev's request rather than asked Putin himself. In other words, one can suspect that Putin and Aven had an arrangement at the time.
Moreover, bearing in mind that oligarchs rather than politicians or public officials were effectively in control of Saint Petersburg in 1996 - and Alfa Group was already among the most influential - Aven's assertion that he did not have enough resources to have Putin transferred to the Kremlin sounds disingenuous at best. And this possibly double footprint of the Alfa Group oligarch in the president's career would make him something of a political godfather of Russia's current leader.
The rise of Andropov's disciples
True, there are other versions about what was behind Putin's transfer to Moscow. According to one of them, in August 1996 Sobchak's deputy was invited to the Kremlin by Anatoly Chubais, the then chief of administration of President Boris Yeltsin. One must note that Putin indeed used to be referred to - at least before becoming president and sometimes even afterwards - as "Chubais' man".
Others used to call Putin a henchman of Boris Berezovsky, one of the best-known Russian oligarchs. Berezovsky himself never denied that he made a significant contribution to having Putin elected president. Even when he found himself exiled in London, he would not admit to having made a mistake. After all, he said, "you must remember the choice I had: between Putin and Yevgeny Primakov".
As a matter of fact, Berezovsky has publicly stated that he was introduced to Putin, back in 1990 or 1991, by none other than Aven. Previously, Aven had been introduced to Chubais and Yegor Gaidar, Russia's future prime minister who is still called the father of the country's economic reform. Aven, Chubais and Gaidar organized the first public conference on reforming the USSR in 1986 near Leningrad.
Aven worked with Gaidar in the 1980s, when both were in the All-Union Scientific Research Institute for System Studies (VNIISI), a Moscow branch of the mysterious International Institute for Applied Systems Analysis (IIASA) in Vienna.
The most telling fact is probably the common biographical detail shared by all the three economists-politicians-oligarchs (Aven, Chubais and Berezovsky) as well as Gaidar. All of them were, in one way or another, linked to the International Institute for Applied Systems Analysis that I have discussed in one of my previous "Putin's Russia" essays.
In a recent interview, Economic Development Minister Alexey Ulyukaev indirectly confirmed that the institute had been envisioned by Yury Andropov, the head of the Soviet KGB and later secretary general of the Communist Party's Central Committee, as an incubator for ideas and cadres for reforms he planned to implement in the Soviet Union.
True, Ulyukaev spoke not about the Institute itself, but about its branch in Moscow, the above-mentioned All-Union Scientific Research Institute for System Studies. However, when asked about whether Andropov had indeed put together a reform project for the USSR, which had involved all the "young reformers", Alyukaev said: "Of course it existed! The most important institutes - first of all, the All-Union Scientific Research Institute for System Studies, the Institute for Economy and Technological Development Prognosis (where Gaidar later worked, M.L.) - were working on it. Only our 'curators' did not foresee qualitative change, all they thought about was how to change the system of indices and motivation. It couldn't lead anywhere. And the participants in this matter, at least on our side, understood it. But we had an opportunity to feed on information, to learn something new."
There can be different takes on what the KGB curators of these "young economists" did or did not foresee. For instance, it is often claimed (especially regarding Berezovsky) that Russia's oligarchs had long assumed that they had "privatized" the KGB, but it eventually turned out that it was them who were "privatized" by the KGB.
But let me focus on facts, not interpretations. It is clearly a fact that after the failed coup of August 1991 the IIASA economists - Aven, Gaidar and Chubais - suddenly rose to highest government posts (there were many more IIASA alumni there).
This interesting and telling fact is what makes me want to look deeper into the role of the IIASA in their respective careers. Especially since Stanislav Shatalin, the head developer of the 500 Days programme that was to make the USSR transition to market economy, had also previously been linked to the IIASA. Not to mention many other IIASA alumni who are now important cogs in Putin's regime.
Where did all the wealth come from?
Bearing in mind Minister Ulyukaev's admission, another story by an anonymous IIASA curator from the KGB, published in February 2002 in Stringer, does not look like a conspiracy theory. Moreover, Oleg Grechenevsky, a well-known researcher of the KGB and its offspring clans in contemporary Russia, thinks it a credible testimony.
According to Grechenevsky, the anonymous KGB curator, who accompanied the "young economists" to internships at the IIASA, might be the former KGB colonel, or major general - and later businessman - Sergey Kugushev. Kugushev is known to have been involved in one of the analyst groups appointed by Andropov to draft a modernization plan for the USSR. He is also an active member of the so-called Gaidar-Chubais economist group. Kugushev's statements therefore merit some credit.
Not only has he described in detail Andropov's reform plan for the USSR, Corporation Red Star, but also elaborated on the role the IIASA was to play in implementing it. According to Kugushev, Andropov had decided to have specialists, who would be in charge of implementing the USSR reform plan, trained abroad and instructed in Western expertise.
The selection process for the "interns" was particularly strict, the head of the KGB took personal charge of it, often sifting through secret surveillance footage. One of the central criteria for would-be interns was how easy they would be to handle once they were in top government positions. This was part of preparation for, according to Kugushev, a possibility of the Communist Party loosing power. The KGB planned to stay on and take over control in the country.
Another interesting testimony about the role that the IIASA played in the career paths of Gaidar, Chubais and Aven is presented by Mikhail Poltoranin, a deputy prime minister under president Yeltsin, in the book "How They Are Killing Russia" ("Как убивают Россию") by the Russian Duma member Alexander Khinshtein. As a matter of fact, Poltoranin headed a special commission after the collapse of the Soviet Union charged with analysing closed archives of the Politburo and declassifying them. According to Poltoranin, all of the trio - Gaidar, Chubais, Aven - were sent to the IIASA and closely supervised by the KGB. He says he has seen documentary evidence of that with his own eyes in the archives.
Moreover, Poltoranin claims, the group trained to take over power in the collapsing USSR, besides Gaidar, Chubais and Aven, also included Alfa Group's Mikhail Fridman and the above-mentioned IIASA alumnus Berezovsky, as well as two oligarchs who have since been destroyed due to their opposition to Putin, Mikhail Khodorkovsky and Vladimir Gusinsky.
Well-known Russian nationalist economist Mikhail Delyagin also spoke, in 2012, about Andropov's "Corporation Red Star" plan and the role of IIASA alumni therein, calling it a "special operation" by the KGB.
A rather thorough account of this is also given in an article published by the magazine Rusky Reporter in October 2012, "The Andropov-Putin Plan", which is based on interviews with former high-ranking KGB employees. The plan was also discussed in reputable Western outlets like The Economist, Radio Free Europe and others.
The first book in the high-profile "Project Russia" series - which is associated with the Kremlin, Russia's special services and the Orthodox Church (the books are a recommended reading for all Russian state officials and politicians) - claims:
"In the early 1990s, Russia's special services managed to make 'infantile thinking' serve their country. After the collapse of the USSR, the vast natural and strategic resources urgently needed to be put under temporary control system. Under no circumstances were the resources to 'work' in the uncontrolled political sector (what is meant by that is probably Russia's democratic movement, M.L.). Efficiency was of secondary importance. The main condition was controllability. A decision was made to hand over state assets to private people. Not just to anyone, however, but to select people."
The abundance of similar testimonies from different sources suggests that these are likely not just rumours or conspiracy theories. This also sheds a different light on a report, submitted by unnamed employees of the Federal Security Service to the State Duma's Security Committee in 1997, alleging that Alfa Bank had been set up by the KGB and the Communist Party. Which means that the bank received some of the funds owned by these organizations that went missing. In fact, even though the Communist Party called for an investigation into the matter, it was never commissioned.
And if we accept that Aven & co were purposefully cultivated to implement Andropov's plan, this also sheds a fresh light on the free reign Putin was given in Saint Petersburg. In essence, Putin's actions were in perfect agreement with the KGB's schemes to hand over state assets to "reliable" private individuals (the existence of such schemes has been corroborated by documents, by now publicly available, published in Dawisha's book and numerous other sources).
The initial importance of the Putin-Aven link in the KGB's plans goes some way to explaining later turns and twists in Putin's career. Aven's role therein - and his continued personal ties with the Russian president - can hardly be seen as accidental.
Accusations of ties with drug lords
There has been no shortage of data about Mikhail Fridman's long-lasting links to the KGB. However, the 1997 State Duma Security Committee report on Alfa Group contains more interesting details.
In the report, Alfa Bank is accused of having been involved in the laundering of Colombian drug money in the 1990s; Fridman and Aven allegedly took personal charge of heroin trafficking from Burma to Germany via East Asia.
In fact, Alfa group's and its leaders' ties to organized crime caught attention in the West in the early 2000s. Fridman then admitted that these, in his words, unsubstantiated accusations had cost Alfa Group a cooperation agreement with the European Bank for Reconstruction and Development, while a US bank had refused to vouch for a 500-million-dollar loan for the oil company TNK, part of Alfa Group at the time.
Responding to very public allegations, Alfa Group owners decided to hire the consultancy firm Kroll which, USD 500,000 later, washed clean the reputation of Fridman, Aven and their business empire. The Kroll report asserted that most accusations against Alfa Group - from drug trafficking to spying - had been fabricated and were not credible.
One must bear in mind, however, that this reputation-bleaching report was commissioned by Alfa Group itself, while Kroll had, in its previous report on the disappearance of funds from the KGB and the Communist Party after to collapse of the USSR, mentioned Aven among officers suspected of shady dealings. The episode is also described in Dawisha's book "Putin's Kleptocracy: Who Owns Russia?".
Moreover, Wikileaks has made available reports on Alfa Group and its owners from another reliable source, the US global intelligence company Stratfor which has a reputation of being a "shadow CIA" and is trusted by many national governments.
A Stratfor report of August 2, 2007 (i.e., several years after Kroll's whitewashing of Alfa Group and its owners), "Mikhail Fridman: Background Investigation", which was probably commissioned by business or government clients, contains a section that deserves to be quoted in full:
"Fridman is closely tied into the Muscovite Solntsevo (Solsnetskaya) Organization, one of Russia's largest and most powerful organized crime associations, via funding from Alfa. Solsnetskaya is a confederation of a half-dozen criminal groups often accused of drug-running, racketeering, money laundering and bribery. The organization is led by Sergei Mikhailov, widely considered to be one of the most dangerous and notorious gangsters in Russia.
"Russian media have frequently tied many oligarchs to the Solsnetskaya organization, though a Russian prosecutor Stratfor spoke with said the evidence that Fridman and Aven are involved with the group has been officially removed from all records. Fridman and Aven have been involved with this organization since the beginning of the 1990s, when they used it for protection. As Alfa became more successful, they turned from customers to partners, and now they are in business with Solsnetskaya. Aven is believed to be heavily involved specifically in applying his business regimen to Solsnetskaya's global drug trade. Aven's direct involvement in the drug trade also has been documented in filings made in U.S. federal court. Specifically, Alfa Group is now involved in transporting drugs from Southeast Asia through Russia into Europe, laundering money of Colombian drug cartels, and bribing organs of justice in Russia in order to keep the entire operation below law enforcement's radar.
"Despite Fridman's officially 'clean' record so far as violence is concerned, he is believed to be at least partially responsible for many of the assassinations that plague Russian society, particularly regarding journalists. (Allegedly, such tactics are a large part of why Fridman enjoys such a clean record.) Two cases in point include the assassination of Ukrainian journalist Georgi Gongadze in Ukraine in 2000 and the 2004 murder of U.S. journalist Paul Klebnikov in Moscow. Fridman's involvement in the two murders has been alluded to by several media publications, including Radio Free Europe and Johnson's List, while also partially corroborated by journalists and Ukrainian politicians Stratfor spoke with while preparing this report.
"Gongadze was believed to be investigating links between Fridman (via Alfa Group) and Ukrainian Parliamentary Chief Oleksandr Moroz when he was killed. Supposedly, Moroz had promised Alfa many lucrative energy projects should he be elected president of Ukraine. (His bid ultimately failed.) According to witness testimony in the case, Alfa hired the local Izmailovskaya organized crime gang to murder and decapitate Gongadze in order to silence his investigations.
"Klebnikov was a reporter for the Russian edition of Forbes and was investigating a number of activities of the Alfa Group when he was killed. An official within Putin's inner circle told Stratfor that before his death, Klebnikov was investigating Alfa's activities regarding IPOC, Megafon and Azerbaijani oil."
Could Alfa have become a solid Western company?
One can be critical about the Stratfor report, but there is so much public information on both Alfa Group's and its owners' criminal ties that it deserves notice.
Moreover, if one were to give credence to accusations against Fridman and Aven, the impression one gets is perfectly in sync with what many authors have revealed about Putin's Russia and the government's union with the criminal world, suggesting that Russia's current regime deserves the designation "mafia state".
Moreover, the Stratfor report (Wikileaks has also published another one, compiled by Stratfor in 2007 for the US company Wal-Mart) draws attention to Alfa Group's interests in Ukraine, which merit consideration in light of Carl Bildt's decision to be both in Ukraine's International Reform Council and consultant for the owners of Alfa Group.
Alfa Group has never made secret of its business interests in Ukraine. Quite on the contrary, it has boasted about being one of Ukraine's biggest foreign investors since 1991. These business interests, represented now by LetterOne, have not gone anywhere. And, from what I've personally heard in conversations with Ukrainian journalists and experts, Alfa Group and its related businesses operate in the country no differently than the usual oligarchic schemes in Ukraine.
Therefore, even if one were to ignore the above-discussed details of Alfa Group's origins and previous conduct, Bildt's simultaneous involvement in Ukraine's International Reform Council and position at LetterOne should raise many questions - that for some reason no one in the West is asking. After all, the oligarchic Ukraine, let alone the "mafia state" of Russia, are hardly the blueprints to be held up by Western partners and the International Reform Council for Ukraine to follow.
Perhaps, though, the accusations and suspicions against Alfa Group are things of the past? Perhaps it has indeed metamorphosed into an "independent" and "Western" company, as believed by Lucas, Aslund and probably Bildt himself?
Let us recall a relatively recent scandal of April 2013. The International Consortium of Investigative Journalists published its 15-month investigation "Offshore Leaks", disclosing details of 130,000 offshore accounts held by entities from over 170 countries, allegedly in order to evade taxes.
The Russians in the list include the wife of deputy prime minister Igor Shuvalov, Gazprom managers and others. It also includes Alfa Group and its owners. What's most interesting - and directly addressed in the report - is that Alfa Group's offshore accounts are handled by a rather mysterious individual, Franz Wolf, the son of East Germany's former security police Stasi head Marcus Wolf.
Germany's influential daily Die Welt chose a particularly suggestive headline to report about the investigation: "Offshore Leaks teaches Putin's friends fear". Not only does the German daily thus point out the far from Western business practices of Alfa Group, but also its close ties with Putin. To my mind, however, the most pointed "accident" in all this is the fact that Aven's and Fridman's suspicious business activities get brushed under the carpet by none other than the son of the former Stasi head. Bearing in mind everything discussed above, one can hardly think this is just a rather incredible coincidence.
Friends and comrades in high posts
Aven's and Fridman's other associations, too, show that Alfa Group is not a "Western-model" enterprise - which is why, arguably, it moved some of its business to the West - but rather a very important part of Putin's regime.
Everyone in Russia knows about Aven's personal ties with Putin and other men of influence. Various Russian sources as well as the above-mentioned report by Stratfor reveal Aven's close relations with Igor Sechin, the head of Rosneft and one of the key figures in Putin's regime, and Fridman's links to Vladislav Surkov, a very influential man in the Kremlin. Moreover, Russia's former prime minister and currently its foreign intelligence chief Mikhail Fradkov has long been thought Alfa Group's henchman.
These networks leading to the owners of Alfa Group suggest that this oligarchic structure (unlike many others, but hardly exceptional) does not belong to any one power clan. Rather, it has built a power structure of its own, one quite unlike traditional clans run by retired officers of the KGB. Still, Alfa Group and its owners are genuine and central pillars of Putin's regime, just as described by reputable think tanks: the Henry Jackson Society, the Peterson Institute for International Economics and the Center for Strategic and International Studies. Therefore we should be cautious, even suspicious, when we see Alfa Group companies making forays into the West. We should look into what goals of the Putin regime they are thus seeking to achieve.