Sanctioned Russians Hand $4.2 Billion Fortune to Partner
Sanctioned Russians Hand $4.2 Billion Fortune to Low-Key Partner
(Bloomberg) -- Andrey Kosogov was never meant to assume this much power in the world of Russia’s billionaires.
He’s long served as a trusted partner to the more well-known — and wealthier — oligarchs Mikhail Fridman and Petr Aven at Alfa-Bank and LetterOne. But he’s kept a low profile, never extending his reach to the West with charitable foundations or being linked to luxury London real estate like his counterparts.
Yet Kosogov, 61, now finds himself with a larger stake in both financial firms than even Fridman himself, after two other billionaire owners, German Khan and Alexei Kuzmichev, transferred over their entire positions. His holdings are worth about $4.2 billion, according to the Bloomberg Billionaires Index.
To outside observers, it’s no secret how Kosogov came to amass the biggest slice of a global business empire with more than $30 billion in net assets in a matter of weeks: He’s not sanctioned by any Western government. The other four billionaires are.
It’s also an open question just how permanent the arrangement would be if Russia’s invasion of Ukraine were to end and governments lifted their penalties.
A representative for Kosogov didn’t respond to requests for comment.
LetterOne has itself remained off of sanctions lists. The investment firm is still dealing with issues involving its own capital, but they’re mild when compared with the headache of being formally sanctioned.
It’s a powerful example of the ongoing game of cat-and-mouse pitting Western governments against super-rich Russians like Alexey Mordashov and Roman Abramovich who are deemed close to Vladimir Putin. With scores of asset freezes and travel bans now in place, the next challenge is making sure they’re enforced. At stake are billions of dollars stretching across the U.K., Europe and North America.
All the while, the pressure campaign is intensifying as the war in Ukraine moves into its third month. The European Union plans to ban Russian crude oil over the next six months as part of a sixth round of sanctions that would also halt property deals with Russian citizens, residents and entities.
“All of this is quite rare and a bit uncharted,” said Henry Smith, a partner at risk consultancy firm Control Risks. “There hasn’t been a sanctions regime against an economy of the size and scale and global integration of Russia.”
Fortune Turns
In the case of Kosogov, it’s a remarkable turn of events for a businessman who just weeks ago was one of the smallest and least-known shareholders in LetterOne and ABH, Alfa-Bank’s parent company. He has stepped down from the boards of both firms.
Still, the transfers give him close to a controlling stake in LetterOne, which he exerted little influence over before, according to people familiar with the matter. Kosogov has never played an active role in running the company or its decisions, the people said -- in fact, they have no memory of ever seeing him at the Luxembourg-based firm’s offices in London.
LetterOne has taken steps “to distance itself from its shareholders, to exclude them from any role in the business, and to prevent any influence from, control by or benefit to them, whether sanctioned or not,” a company spokesperson said in a statement. “These actions -- not the sale of shareholdings to Andrey Kosogov, in which LetterOne had no involvement -- are the critical criteria for ensuring a business is not sanctioned.”
Kosogov financed the purchase of Khan and Kuzmichev’s LetterOne stakes with a note repayable within a decade bearing 2% interest, according to a person familiar with the matter. The loan was financed by other sanctioned LetterOne executives, people familiar with the matter said.
Alfa-Bank said on March 15 that Khan and Kuzmichev ceded their shares in Russia’s biggest private bank, the same day the EU and the U.K. sanctioned them. They also transferred their LetterOne stakes before the penalties hit, according to a person familiar with the transactions, who asked not to be named as the information isn’t public.
Fridman and Aven are also sanctioned, meaning Kosogov is the only individual shareholder left in ABH and LetterOne without asset freezes and travel bans.
Control ‘Cutout’
David Lingelbach, who dealt with Fridman when he headed Bank of America Corp.’s Russian operations in the 1990s, said he found it hard to imagine Fridman giving up control of Alfa-Bank, the major source of his fortune. He suggested Kosogov may be a “cutout” for the oligarch to retain influence.
“Alfa-Bank is the key to Fridman’s empire,” said Lingelbach, now a professor of entrepreneurship at the University of Baltimore.
A representative for Luxembourg-based ABH didn’t respond to requests for comment.
Born in Soviet Estonia, Kosogov started trying to find ways to make money while still at university, spending his summer holidays as a worker at construction sites across the Soviet Union.
“At that time there were practically no other chances to make money,” he said in a 2016 interview with Moscow Energy Institute, his alma mater.
Ukraine Merger
Kosogov was an early associate of Alfa Group, the company that Fridman, Khan and Kuzmichev founded in 1990 to oversee their investments.
He became Alfa-Bank’s deputy chairman in 1998 and ran its investment-banking unit. He also helped in 2000 to merge its Ukrainian bank and brokerage subsidiaries to create one of the nation’s largest banking groups, later helping to oversee it as chairman of the firm’s Ukraine supervisory board.
Kosogov had a 4% stake in Alfa-Bank by the end of 2007. That position was about the same as the lender’s former chief executive officer, Alex Knaster, who left to form Pamplona Capital Management, a London-based private equity firm that’s now liquidating funds with ties to LetterOne.
Kosogov’s position in Alfa-Bank’s parent company, which was little changed from 15 years ago as recently as early March, is now 41%, according to registry filings. He controls 47.2% of LetterOne after the transfers from Khan and Kuzmichev, exceeding Fridman’s 37.9% holding, which is frozen.
Though he’s unsanctioned, Kosogov has disappeared from LetterOne’s website since early March along with his fellow billionaire compatriots. They founded the firm in 2013 with their proceeds from the $55 billion sale of Russian oil producer TNK-BP to state-owned Rosneft Oil Co.
LetterOne’s founders have resigned from their positions at the company and plan to divert future dividends to support relief efforts for the Ukraine war. They also recently resigned from the board of directors of ABH.
“My partners and I stand for the earliest end to war,” Khan said in a March statement. We “will do all we can to help those affected.”
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