Russian Oligarchs 'Close to Putin' Aren't What They Seem

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(Bloomberg) -- Thanks to Stormy Daniels’s lawyer Michael Avenatti, the cliche “Russian oligarch close (or ‘closely linked’) to Vladimir Putin” is making the rounds again. A word of warning: Many wealthy Russians’ closeness to Putin is not at all what it seems. Viktor Vekselberg, whose name came up in Avenatti’s revelations, is a case in point.

The latest story of Trump lawyer Michael Cohen allegedly taking payments from companies seeking an insight into the administration should stand on its merits, not on a tenuous “Putin connection.” Russian hierarchies aren’t straightforward.

Last month, The New York Times ran a story claiming lawyer Natalya Veselnitskaya, who famously met with Trump campaign officials in June 2016, had “close ties to the Kremlin.” The story quoted Veselnitskaya’s email exchange with Sergei Bochkaryov, whose title — not given in the story — is “deputy head of the directorate for the supervision of especially important cases” at the Russian prosecutor general’s office. There are two levels of hierarchy between Bochkaryov and Russia’s prosecutor general, who could be counted as a Kremlin insider; saying a connection to him (proven by a business-like email that starts with a perfectly formal address) is a Kremlin link is like saying a deputy head of an FBI department represents White House ties.

The case of oligarchs’ “closeness to Putin” is less obvious. Any discussion of it should start with the term “oligarch,” which, when it came into broad usage in Russia in the mid-1990s, referred to a group of people who had succeeded at state capture. The reason the Putin-era elite rejects the term is that the state turned the tables on those particular people. Essentially, it captured their assets without confiscating them.

That became obvious when Mikhail Khodorkovsky, then Russia’s wealthiest man, was arrested in 2003 — ostensibly for tax evasion, but most understood his real crime was funding political opposition to Putin and trying to meddle in policymaking. He would go on to spend a decade in prison; other “oligarchs” of the 1990s, the privatizers of  the Soviet Union’s vast and decrepit industrial wealth, had to decide whether they wanted to bow to Putin or take risks on a Khodorkovsky-style path. 

Vekselberg, who founded his Renova holding in 1990 and spent the next decade assembling a portfolio of privatized industrial assets, was among those who chose loyalty to the Kremlin and did their best to signal it publicly. In early 2004, he spent $100 million to buy and bring back to Russia the Forbes family’s collection of imperial Faberge eggs, one of the most iconic czarist treasures. 

This showed to the Kremlin that his fortune, clout and business skill would be available when it needed extra budgetary help. He has obliged numerous times — the $40 million of his own money he spent restoring the St. Petersburg palace where the Faberge collection is housed today was far from the biggest contribution that was asked of him. 

In 2010, during Dmitry Medvedev’s presidency, Vekselberg accepted the job of chairman of Skolkovo, Medvedev’s pet project to create a Russian Silicon Valley near Moscow. Later that year, Putin asked him to build a hotel cluster in Sochi for his own pet project, the 2014 Winter Olympics. He couldn’t refuse, though he had misgivings about it and says he wasn’t offered any quid pro quo. Vekselberg’s contributions to the Putin regime’s glory didn’t buy him immunity from Putin’s predatory enforcers. In 2013, the prosecutor general’s office accused several Skolkovo officials of corruption. The case, which forced the billionaire to work furiously to defend the project, dragged on until late 2015. In 2016, two senior Renova managers were detained on corruption charges unrelated to Skolkovo. Their trial is still pending, and Vekselberg has stood by them, putting them up for election to the board of directors of one of his major companies this year.

The criminal cases against subordinates are a form of Kremlin hostage-taking. It was used extensively with Khodorkovsky too. Perhaps mindful of how precarious a billionaire’s position can be in Moscow, Vekselberg has worked to minimize his exposure to Russia. Today, according to Bloomberg Billionaires data, some 79 percent of his assets are not anchored to the country where he’s supposed to be an oligarch. But as long as he retains significant business interests in Russia, he is on the hook to do Putin’s bidding; the danger of not doing it is constantly brought home to him through the criminal cases against associates.

This is not to say oligarchs don’t exist today — just that they are not the same people who were described by that term in the 1990s. Billionaires from that era are used as cash cows when the need arises. A different group, Putin’s cronies from his KGB and St. Petersburg mayor’s office days, has access to the levers of power. Rosneft Chief Executive Officer Igor Sechin’s recent successful operation to remove and jail Economy Minister Alexei Ulyukaev is an example of how that works as Putin’s interest in micromanagement wanes.

In a recent Twitter thread, Julia Ioffe, one of the better-informed commentators on Russia writing today in the U.S., pointed out that “an oligarch close to Vladimir Putin” is “a meaningless phrase” because oligarchs who aren’t long-time Putin cronies must “play by the rules to keep their money.” Putin, Ioffe wrote, is “their blackjack dealer.”

In the Russian system, though, the house always wins. Even the wealthiest business owner serves at the president’s pleasure. It’s not really a game but an abusive relationship with elements of codependency. After Vekselberg was hit by U.S. sanctions last month, he reportedly asked for a big package of remedial measures including Russian sanctions against his Western competitors.

It’s important for Americans to understand that not everyone on Forbes Russia’s list of rich Russians is an oligarch, and that while all these people of necessity have links to the Kremlin, in many cases these links aren’t accurately described by the word “close.” There are forced links, painful links, ones that serve a particular purpose and those arising from past relationships. In a system where no formal promises are ever made, these links can be a blessing or a curse — or both.

The Trump-Russia scandal depends too much on innuendo about various characters’ “closeness to Putin.” That’s facile and pointless. A case against Trump and people on his team can only be built on specific evidence of transgressions, not on that kind of uninformed generalization.

©2018 Bloomberg L.P.

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