Sergei Pugachev, the oligarch who claims 12 billion from Putin.

INVESTIGATION – The Russian billionaire used to be the owner of shipyards, coal mines and of Hédiard. Fallen from grace, tracked by the Russian justice, and also by the British, he contends that he was expropriated. We have met the “Tsar”’s former advisor, who is now seeking remedy before a tribunal in Paris.

For a long time he used to be known as “Putin’s banker”. Today, the banker has turned against his “client”, and demands nothing less than 12 billion dollars from the latter. This stupendous amount is being claimed from the Russian Federation and, thus, from Vladimir Putin, because according to the Claimant, “Putin is the State”. The man who dares to defy the almighty Russian president is Sergey Pugachev, a fallen oligarch and a longtime citizen of France. It is in his capacity as a French citizen that he shall fight the next round of this power struggle on Tuesday 12 November in Paris — the struggle that aims to recover his expropriated assets’ value.

In the busy crowd of Russian oligarchs there are those who are still at the sovereign’s court, those fallen from grace and those who disappeared under more or less mysterious circumstances. Sergei Viktorovich Pugachev used to be the owner of the delicatessen brand Hédiard and, through his son Alexander, of the daily newspaper France Soir. He is now preparing to take part in a hearing of the International Arbitration Court of The Hague, commencing this Tuesday. Four days of judicial confrontation, taking place in Paris rather than in the Netherlands. “This was done to ensure the safety of a French citizen”, says Sergei Pugachev.

The former banker has arrived by plane from Nice, where he lives, and has offered to meet Le Figaro’s journalists in a cosy salon of a luxury hotel in Paris. The man is tall and slender, casually dressed in a leather jacket, a dark jumper and jeans. His beard and moustache are trimmed shorter than in the 2000s, when his face invariably reminded one of Nicholas II. He comes accompanied by his body guard, who is sporting a conspicuous earpiece and sits down a few meters away. “I have been receiving death threats for years”, Pugachev explains.

In 2015, when he was still living in London with Alexandra Tolstoy, the mother of his three younger children, strange boxes were discovered under his car. He believes them to be explosive devices; they might have been beacons. The case was referred to Scotland Yard, then brought before a French court. The investigation is still ongoing. “My lawyers here, Pugachev says in a bantering manner, have figured out they were being followed. As to me, I’m already used to it, you know.” Unrelenting intimidation? Genuine desire to have Pugachev killed? When you are up against the Kremlin, no hypothesis can be excluded.

But how did the former owner of Hédiard get himself in this most uncomfortable situation? We ask him, and he tells us, his speech somewhat harried. Sergei Viktorovich, 56 years old, has several lives behind him. He understands French, is fluent in English, but he prefers to use the language of Pushkin when pleading his case. “I was close to Patriarch Alexis (head of the Russian Orthodox Church from 1990 to his passing in 2008), he knew my father”, Pugachev begins. “It is through him that I came to be Boris Yeltsin’s adviser”. Pugachev had not yet turned thirty, when he founded “the first private bank” in post-Soviet Russia: the International Industrial Bank a.k.a. Mezhprombank. The financier denies having been the Patriarchate’s banker, leave alone having laundered the Church’s money. This, according to him, is a “fake story”, that is being spread around.

Having become part of the “Family”, that is President Yeltsin’s inner circle, Sergey Pugachev moved to a dacha, one of those lavish villas built in the suburbs of Moscow for the Soviet establishment. There, in the Gorki residential area, the young banker and councillor to the reigning sovereign had a neighbour: one Vladimir Putin, the new head of FSB. The two men got acquainted. For whoever would be inclined to doubt his close relationship with “Volodia”, Pugachev has posted on his personal website photographs of a birthday party and a snooker game at Brezhnev’s former country house. The picture shows Pugachev’s two elder sons, born from his marriage with Galina, still in their teens, keeping company to Masha and Katia, Putin’s daughters. The latter are a taboo subject in Russia.

He may be ten years younger than Putin, but Sergey Pugachev claims to have brought the king to power. He insists that he was the one to mention the FSB chief to the Yeltsin clan, as a potential prime minister and successor to the declining president. Against the widespread clichés, Pugachev depicts Putin as a weakly character, “incapable of saying no” — one who would always side with the most powerful clan at a given moment. A description at odds with his own assertion that “today all the high-ranking officials, governors, former KGB men —  they have all been appointed by Putin; I was one who owed nothing to him”.

The businessman is brimming with memories; so much so that it is sometimes hard to keep track of the precise chronology of his various personal interactions with Putin. One such crucial exchange, “dragging on until 3 am”, took place in 2009 in the President’s residence of Novo-Ogarevo. “He failed to realise that the situation in the country had changed. He kept telling me that the people needed a Tsar.” On that day the oligarch tells the Tsar that he wants to leave the country and settle in France, where he owns, among other assets, Hédiard, purchased in 2007. According to him, his Russian financial and industrial empire, employing 300 000 people, amounted to 15 billion dollars back then. “I understand that Putin did not want my assets to end up in the hands of the wrong people.” According to Pugachev, quite a number of documents analysed by his innumerable lawyers — who are Russian, British, American and French — clearly show that back then the State was still prepared to buy his assets from him. “The choice morsels were my shipyards in Petersburg, with their order book of 60 billion dollars” — the very shipyards that were to build the Mistral-class combat ships bought from France, before François Hollande repudiated the contract in response to Russia’s annexation of the Crimea. From then on, Pugachev says, Putin’s entourage, “the pack”, were set on grabbing his assets.

Problems started to pile up. Mezhprombank went bankrupt. The Russian justice allegedly established Pugachev’s subsidiary liability for nearly a billion dollars. The oligarch swears that he “had nothing to do with the bank at least for the past nine years”, and points to “a case that has been fabricated from beginning to end”. But this bank, which he had founded, and whose licence was withdrawn in 2010, was actually financing all of his other companies. He made the point in a letter addressed to Putin in 2014. In a television speech Putin threatened Pugachev, and enjoined him to “return what he has taken”. “This TV show came as a real shock to me. It marked the beginning of aggressive expropriation”, the President’s former adviser tells us. The takeover of the shipyards was followed by the freezing of assets of the world’s biggest coking coal mine, which Pugachev was developing in Siberia. Pugachev was also ousted from the prestigious real estate development project on Red Square, which was going to involve Jean-Michel Wilmotte. Hediard’s bankruptcy, too, was allegedly caused by the Kremlin’s cutting his cashflows.

Moscow succeeded in obtaining a worldwide freezing order on Pugachev’s assets from the British justice. Pugachev, who failed to comply with the orders of the London courts and left the United Kingdom, has been condemned in absentia to two years of emprisonnent for contempt of court.

The French justice, on the other hand, in a decision of the Tribunal de Grande Instance of Nice rendered in February 2019, ruled against a seizure of Pugachev’s assets in France by the Deposit Insurance Agency, acting as Mezhprombank’s liquidator. The businessman was thus able to retain ownership of the château de Gairaut — a stunning property build in 1904 on a hill above Nice, offering an unrivalled view over the Angels’ Bay and now guarded by intimidating Malinois dogs.

In 2015 Pugachev filed a claim before the International Arbitration Court at The Hague. His former partner, Countess Alexandra Tolstoy — related to the famous Russian writer — is known to have asked him to withdraw his claim in exchange for the right to see his children. “My children’s mother has been corrupted by the Russians… I have not seen my youngest six-year old daughter for three years”, the ex-oligarch breathes out, his razor-sharp green-grey eyes suddenly getting misty. As to Alexandra Tolstoy, she has complained to the British press that she has been denied any financial support by her ex-partner.

How, then, does he now manage to finance his lifestyle on the French Riviera, pay his lawyers, afford personal safety measures? Pugachev tends to stay discreet about his “business”. He is also a young grand-father: he has six grand-children, born in France to his two older sons. He launches into an enthusiastic speech about OPK Biotech, a Boston start-up working on artificial blood, in which he has had stock for years.

In Paris, the three arbitrators (a Columbian, designated by the Claimant, a Spaniard designated by the Russian side, and a Frenchman) have called high-ranking witnesses to appear, among whom Aleksei Kudrin, former minister of Finance of the Russian Federation and current Chairman of the Court of Audit, and former Prime minister Viktor Zubkov. Their actual appearance at the hearing would be a surprise. There are seven lawyers approved for each side by the Tribunal’s order, but Jean-Georges Betto, representing Sergey Pugachev, and David Goldberg from the London firm White&Case, representing the Russian Federation, have both refused to comment.

Can the oligarch win? An historical arbitration precedent was set in 2015, when the International Arbitration Court of The Hague issued an award in favour of the majority shareholders of the Yukos group, founded by Mikhail Khodorkovsky, condemning Russia to pay the gigantic amount of 50 billion US dollars. The award was subsequently set aside, and this 15-year-old case is still ongoing. Sergey Pugachev believes his own case to be sounder from the legal standpoint, because it relies on a bilateral agreement on investment protection, signed by the USSR and France on 4 July 1989.

This week’s hearing will mark an additional step in a seemingly endless judicial saga. If Pugachev wins the arbitration and Russia refuses to pay, this will mean “that the 160 bilateral agreement on investment protection signed by Russia are worth nothing”, the banker warns. This would signal disaster for such French companies as Total, Renault or Auchan, that have invested billions in Russia. According to Pugachev, Emmanuel Macron should use this legal case as a trump card to exert pressure on Russia. The former protégé of the Orthodox Patriarch has faith in his case and in the international justice. Even faced with his former neighbour and friend Volodia, he declares that “it is impossible to lose”.

FSB colonel Cherkalin has testified against Miroshnikov, former deputy head of the DIA.

FSB colonel Cherkalin has testified against Miroshnikov, former deputy head of the DIA. The latter is charged with setting up a scheme for racketing banks.

According to one of the versions pursued by the Investigation Committee of the Russian Federation, part of the billions found at the colonel’s home were in fact the “share” belonging to DIA’s top manager Miroshnikov, who has left Russia.

Testimony of an officer

Kirill Cherkalin, the former head of the Second Section of the “K” Department of the FSB Economic Security Service, has told the investigators of the role played by the First Deputy Head of DIA, Valery Miroshnikov, in setting up schemes for criminal “protection” of banks (known in Russian as kryshevanie — translator’s note). This information has been shared with “Open Media” by a contact familiar with the above individuals, both of whom are currently under criminal investigation; it has also been confirmed by a source close to the investigation. Miroshnikov currently has the status of witness in this case, but Cherkalin insists that the Deputy Head of DIA was the one setting up all the criminal schemes. Furthermore, according to Cherkalin’s statement, a large part of the record amount of 12 billion rubles, found during home searches, did in reality belong to the state agency’s top manager and was merely “deposited” at the officer’s parents’ place. “A man who is being blamed for all has cropped up in this case”, stresses an acquaintance of the colonel’s.

The statement of Oleg Shigaev, former owner of Baltiysky Bank, also mentions Miroshnikov’s receiving large bribes. Shigaev’s statement is currently being checked by the Investigation Committee. Shigaev also alleges that Miroshnikov used to force the management of the targeted financial institution to agree to a restructuring procedure, threatening that failure to comply would result in the withdrawal of the bank’s licence and “unavoidable problems with law enforcement bodies”. Out of the funds allocated to the restructuring, one billion was to be paid to Miroshnikov and his “supervisors from the FSB, for organising and facilitating the deal”.

Miroshnikov was involved from the start in the setting up of the Russian deposit insurance system, having first worked for the Central Bank, then for the Agency for the Restructuring of Credit Institutions, which was subsequently replaced by the DIA. Miroshnikov has thus worked at DIA from the very beginning, being first appointed Deputy Head, then First Deputy Head in 2005, when he was put in charge of all the issues connected with the liquidation and reorganisation of credit institutions. The authors of the joint investigation conducted by the media “Proekt” and “The Bell” quote bankers, who wished to remain anonymous, saying that Cherkalin and Miroshnikov tried to obtain money from them for preventing the withdrawal of their banking licence and suspending criminal pursuits launched against those bankers for diversion of funds.

Three persons are currently facing charges in this case: Kirill Cherkalin, and two of his colleagues, namely Dmitry Frolov, his predecessor as head of the “banking” section, and one Andrei Vasiliev. They were arrested on 25 April 2019. Cherkalin is charged with having provided “overall protection” to commercial entities, against payments amounting to 850 000 US dollars. All three are also under suspicion of fraud. A “Kommersant” article mentions that Cherkalin allegedly received money for “protecting” Aleksandr Mazanov, co-owner of Transportnyi Bank, and was also part of a criminal group, that embezzled profits from the selling of luxury residential properties in Moscow.

Cherkalin is actively cooperating with the law enforcement bodies. “Rosbalt” writes that the colonel has repented and asked to sign a preliminary agreement. “Businessmen and bankers, who at some point had to face the Cherkalin-Frolov tandem and their accomplices, are currently coming to the FSB to declare amounts that were transferred to the latter in exchange for protection and other such services. However these statements can seldom be taken into account, for lack of substantial evidence. Now that Cherkalin has made his statement, some of these cases might perhaps be investigated further”, says a source within the Agency. Finally, Cherkalin has agreed to hand over to the State some 6 billion rubles, which, according to his lawyer, were derived from “sources not provided for by the law”. Cherkalin’s lawyer Vladimir Mikhailov refused to comment on the ongoing investigation.

An Israeli partner

The investigators grew interested in Miroshnikov’s correspondence with Cherkalin, but have so far been unable to interrogate him: being summoned by the authorities, Miroshnikov failed to appear. On 10 July the DIA announced that Miroshnikov had resigned from his post. According to a person acquainted with the Agency’s Deputy Head, interviewed by “Open Media”, Miroshnikov has not been seen at the workplace for at least two months before his resignation. He appears to have left the country immediately after Cherkalin and his two colleagues were arrested. The FSB colonel somehow seems to only use the past tense to speak about the former Deputy Head of the DIA: “Cherkalin testifies against Miroshnikov, speaking as if the latter was already dead”, stresses one of the colonel’s acquaintances.

According to one of the sources mentioned in the joint investigation by “Proekt” and “The Bell”, after Cherkalin was arrested, Miroshnikov first went on vacation to Australia with his family, then moved to Germany. The investigators believe that he might currently be in Israel, says a source close to the Investigation Committee. According to that source, Miroshnikov might have joined his former business partner and colleague Aleksandr Dunaev. Dunaev had been previously mentioned by Mezhprombank’s former owner Sergei Pugachev. The senator accused Miroshnikov of attempting to extort 350 million dollars from him, threatening him with physical reprisal and criminal pursuits. Incidentally, these threats were allegedly conveyed to Pugachev in June 2011 by Aleksandr Dunaev.

Dunaev is also mentioned as a “consultant working with the DIA” in the testimony of Oksana Reinhardt, executive director for emerging markets at the Japanese financial firm Nomura. Reinhardt gave an affidavit in 2012 in relation with the Pugachev case and  in view of potential international arbitration proceedings (which were effectively launched when Pugachev filed a claim with the Permanent Arbitration Court at The Hague). “Open Media” has a copy of the materials mentioned above, and their authenticity has been confirmed by a source familiar with the investigation.

Given that Nomura was a creditor of Mezhprombank’s, Reinhardt attempted to find out from Miroshnikov how her firm might recover its funds. According to her, during their first meeting with Miroshnikov, the Deputy Head claimed to “have experience in putting pressure on oligarchs who have left Russia”. During their second meeting Dunaev was also present, and stated that issues related to the debts of Pugachev’s entities would be solved by selling his Severnaya shipyard. Creditors would then be able to claim funds, but not Pugachev, Dunaev added. This is what effectively happened: the shipyard was auctioned during the summer of 2012 and sold for a price nearly eight times lower than what Pugachev had expected to obtain.

In 2012 Dunaev fell under criminal investigation in a case of embezzlement for over half a billion rubles, but he was able to flee the country. In 2014 he was arrested in Israel, but no extradition occurred, because an Interpol red warrant was been issued against him in 2017. Dunaev is still wanted by the Ministry of Interior, according to the Ministry’s database.