Decision of the last session of the Hague Tribunal on the claim of Sergei Pugachev against the Russian Federation

Today it became known about the decision of the last session of the Hague Tribunal on the claim of Sergei Pugachev against the Russian Federation, which examined the powers of the Tribunal to consider the claim.

The lawsuit against Russia on the basis of the Agreement between the Government of the USSR and the Government of the French Republic on mutual encouragement and mutual protection of capital investments dated July 4, 1989 (hereinafter referred to as the Agreement) in connection with the expropriation by the Russian Federation of Mr Pugachev’s assets was filed by Mr. Pugachev in 2015.

Jurisdiction hearings were held in Paris in November 2019, and the decision became known only today.

Two out of three arbitrators considered that the Tribunal did not have jurisdiction to consider the claim.

The Tribunal in its decision recognized many of the arguments of Mr. Pugachev, but unfortunately, deviated from the well established principle in judicial practice according to which the Agreement protects the investor at the time of expropriation, and not at the time of the investment.

One of the arbitrators does not agree with the opinions of the other two and wrote his dissenting opinion, in which he pointed out that the interpretation of citizenship issues by the other two arbitrators is incompatible both with the text of the Agreement itself and with established case law.

This decision does not mean termination of the proceedings of Mr. Pugachev v. Russia.

The decision of the Tribunal will be appealed within the established procedural timelines.

Mr. Pugachev’s lawyers are confident that this decision will be set aside.

Press Service of Sergey Pugachev

Putin’s People: How the KGB Took Back Russia and Then Took on the West

It was late in the evening in May 2015, and Sergei Pugachev was flicking through an old family photo album he’d found from 13 years ago or more. In one picture from a birthday party at his Moscow dacha, his son Viktor keeps his eyes downcast as one of Vladimir Putin’s daughter’s smiles and whispers in his ear. In another, Viktor and his other son, Alexander, are posing on a staircase in the Kremlin presidential library with Putin’s two daughters.

We were sitting in the kitchen of Pugachev’s latest residence, a three-storey townhouse in well-heeled Chelsea, southwest London. The late-evening light glanced in through the cathedral-sized windows and birds chirped in the trees outside. The high-powered life Pugachev had once enjoyed in Moscow — the secret deal-making, the “understandings” between friends in the Kremlin corridors of power — seemed a world away. But Moscow’s influence was still lurking like a shadow outside his door.

The day before, Pugachev had been forced to seek the protection of the UK counter-terrorism police. His bodyguards had found suspicious-looking boxes with protruding wires taped underneath his Rolls-Royce (later found to be tracking devices), as well as on the car used to transport his three youngest children to school.

Sergei Pugachev with his partner, Alexandra Tolstoy
Sergei Pugachev with his partner, Alexandra Tolstoy

Now, on the wall of the Pugachevs’ sitting room, behind the rocking horse and across from the family portraits, the SO15 counter-terrorism command had installed a grey box containing an alarm that could be activated in the event of attack.

Fifteen years before, Pugachev, a Russian Orthodox believer with a dark beard and broad grin, had been a Kremlin insider who’d manoeuvred endlessly behind the scenes to help bring Vladimir Putin to power. Once known as the Kremlin’s banker, he’d been close to the family of Russia’s first president, Boris Yeltsin. For years he’d seemed untouchable. But now the Kremlin machine he’d once been part of had turned against him. First, the Kremlin had moved in on his business empire, taking it for itself. Pugachev had fled Russia, ending up in Britain, but he still hadn’t felt safe.

And so one day in June 2015, a few weeks after we’d met in his Chelsea home, Pugachev was suddenly no longer in the UK. His phones had all been switched off, ditched by the wayside as he ran. He’d ignored the court orders forbidding him to leave the country. He hadn’t even told his partner and mother of his three children, the London socialite Alexandra Tolstoy, who was left waiting late into the night for him to appear at her father’s 80th birthday party. He’d fled to the relative safety of his villa high in the hills above the bay of Nice, a fortress surrounded by a high iron fence with a team of bodyguards and security cameras at every turn.

Before things had got tough in London, Pugachev had never given an interview on the record in his life. Few knew who he was. Most people believed it was the recently deceased oligarch Boris Berezovsky who had helped bring Putin to power — when in fact Pugachev had treated Putin as his protégé and been instrumental in making him president in 2000.

Putin and Pugachev in Moscow
Putin and Pugachev in Moscow
ITAR TASS/REUTERS

Now he was speaking out. He and other inner-circle sources I interviewed laid bare how Putin came to power 20 years ago and the rise of the tight-knit clan of KGB men surrounding him. First they enriched themselves and then they began to pose a threat to the West. And there is no sign of it stopping: earlier this month Putin set in train constitutional changes that will enable him to stay in power until 2036 — an autocrat in all but name.

“These people, they are mutants,” said Pugachev. “They are a mixture of Homo sovieticus with the wild capitalists of the past 20 years. They have stolen so much to fill their pockets. All their families live somewhere in London.”

What emerged as a result of Putin’s rise and the KGB takeover not only of the country’s political and legal systems but also the economy was a regime in which the billions of dollars at Putin’s cronies’ disposal were to be actively used to undermine and corrupt the institutions and democracies of the West.

The inner circle
The former president Boris Yeltsin at Putin’s inauguration, 2000
The former president Boris Yeltsin at Putin’s inauguration, 2000
GETTY

As Vladimir Putin strode alone through the vaulted halls of the Grand Kremlin Palace, he seemed dwarfed by the majesty of the presidential inauguration. Solemn, with a slight smile, downcast gaze and light, lopsided gait, he was dressed in a dark suit that differed little from the garb of an everyday office worker. He’d been trained to be bland and unremarkable, to blend in anywhere. But on this day trumpeters dressed in an imperial uniform of white and gold heralded his entrance, while the state officials who thronged the gilded palace rooms applauded his every step down the red carpet into the glittering Andreyevsky Hall.

It was May 7, 2000, and the kandidat rezident (the spy candidate, cast as a patriot who would restore the Russian state) had arrived in the Kremlin. Putin, a former KGB officer who only eight months before had been just another faceless bureaucrat, was about to take on the mantle of Russian president.

Unnoticed in the mass of officials were the KGB men Putin had brought with him from St Petersburg, where he had been deputy mayor. Among them were KGB-linked businessmen such as Yury Kovalchuk, the former physicist who’d become the largest shareholder in Bank Rossiya, a St Petersburg bank created by the Communist Party in the twilight of the Soviet Union. There too was Gennady Timchenko, an alleged one-time KGB operative who’d worked closely with Putin and held a near monopoly on the city’s oil exports. (Timchenko, however, has denied working for the KGB.) And there was Nikolai Patrushev, the gnarled head of the FSB, successor to the KGB. A year older than Putin, he’d served with him in the St Petersburg KGB’s counter-intelligence division in the late 1970s.

From left: Vladimir Yakunin, Gennady Timchenko and Igor Sechin
From left: Vladimir Yakunin, Gennady Timchenko and Igor Sechin
GETTY

Perhaps the closest to the new president, though, was Igor Sechin. Eight years younger than Putin, he had followed him like a shadow ever since Putin’s appointment as deputy mayor in St Petersburg. He had served as his secretary, standing like a sentry behind a podium in the anteroom leading to Putin’s office. He controlled access to Putin and all the papers Putin saw.

Eventually, said Pugachev, this inner circle made Putin. “They changed him into someone else.” Putin had begun his presidency appearing to pursue liberal economic reforms and a closer relationship with the West. But the initial steps turned out to be short-lived and illusory. “He got disappointed in the US and then he just wanted to get rich,” said Pugachev. The influence of the St Petersburg security men, steeped in the zero-sum thinking of the Cold War, soon began to outweigh all else. The economy was a weapon to be harnessed to further their own power.

All the while Pugachev moved in the shadows watching over his protégé. Pugachev said that in Putin’s first year in office he spent £30m on meeting the Putin family’s every need, down to buying the cutlery they used in their home. He bought apartments for prosecutors to make sure they were under the president’s — and his — control.

Pugachev claimed that he was trying to bring an end to the era when the oligarchs of the Yeltsin years believed they controlled the Kremlin by giving “donations” to Kremlin officials — not realising, perhaps, that essentially he was doing exactly the same.

But the KGB men had long been looking at the situation intently. Vladimir Yakunin, a bluff former KGB officer who’d been close to Putin since the early 1990s, had prepared a study on the ownership of the Russian economy. It found that in 1998-99 almost 50% of the nation’s gross domestic product was produced by companies owned by just eight families. “All the profits were going into private pockets. No taxes were paid,” says Yakunin now, nearly 20 years later. “It was looting, pure and simple. Without greater state involvement, it was clear to me it was a path to nowhere.”

For Putin’s security men, the Yeltsin-era oligarchs’ sending of cash to the West provided a useful argument for shoring up their own power. They could claim that the dominance of the oligarchs was a threat to national security, though it was mostly a threat to their own positions. They saw themselves as the anointed guardians of Russia’s restoration as an imperial power, and believed the resurgence of the state and their own fates were inextricably — and conveniently — linked.

So those close to Putin, his old allies and former KGB associates, began to seize Russia’s prize assets for themselves. One of those who went on to be most successful was Timchenko, who had worked with Putin in St Petersburg — and, some associates suggested, may have had links to him even earlier than that when Putin served in the KGB in Dresden, East Germany.

Putin’s money

For a time the rise of Gunvor, an oil-trading company part-owned by Timchenko, was one of the industry’s great mysteries. At first few noticed when Rosneft, a Russian state oil company run by Putin’s ally Sechin, began redirecting the bulk of its exports through Gunvor. Then the state-controlled gas and oil company Gazprom also began awarding large contracts to Gunvor. Cowed by the Kremlin’s growing might, other oil majors, anxious to curry favour, followed suit. Within four years, Gunvor was trading 30% of all seaborne oil exports from Russia.

By 2008 it had become the world’s third-biggest oil trader, with revenues of £35bn. But who owned it? Where did the profits go?

On paper Gunvor was owned by Timchenko and his Swedish business partner, Torbjorn Tornqvist, but also by a third shareholder whose name, the oil trader initially said, could not be revealed. Of all Putin’s close KGB cohorts who were now rising in business, Timchenko had kept the lowest profile. He operated in a world shrouded in secrecy, shuttling between Moscow and Switzerland, where he lived in a mansion surrounded by manicured gardens and a high, guarded fence overlooking Lake Geneva. The business he handled was so sensitive that he never used email. If he spoke by mobile phone, he did so in the full awareness that he was being listened to. He’d never given an interview until 2008, when Gunvor’s meteoric rise forced him into the light. At that point only one photograph of him had ever been seen.

In the early days Timchenko was kept almost invisible, even to those closest to Putin. Pugachev had seen him only once. “Putin had always hidden him from me,” he said. One wintry evening he’d arrived at Putin’s residence outside Moscow to find Timchenko in the kitchen. Putin had ordered Timchenko to wait outside in the snow while they discussed business. It was as if he was trying to demonstrate to Pugachev that Timchenko wasn’t important to him. But to Pugachev it revealed the sensitivity of the relationship between the two men.

The reason for the apparent secrecy became clear to Pugachev when a banker flew in to see him from Switzerland towards the end of 2003. The banker asked him about Timchenko, and said he’d been told that he was a holder of funds for the president: “He told me, ‘There’s a guy named Timchenko and he’s brought us a huge amount of money.’ He told me all this money is Putin’s,” Pugachev said.

Timchenko has always strongly denied that Gunvor’s success had anything to do with the president, insisting it was down to his own business savvy. Putin also swatted away such allegations, once telling reporters they were nonsense “picked out of someone’s nose and smeared on bits of paper”.

For Pugachev, however, the sensitivity and secrecy surrounding Timchenko could mean only one thing: at the beginning of Putin’s presidency, he was the first business ally to hold funds for him.

For two of Timchenko’s former KGB associates and two close Putin allies, the root of Gunvor’s success could lie only in financial connections with the Russian president. “Putin’s money, of course it’s there,” one of them told me. “How else do you think Timchenko became such a billionaire?”

“When Gunvor was created it was 100% Putin’s company,” said a Russian tycoon close to Putin. “Timchenko is just the holder of a purse that has $10bn in its account. He might differ over how much of it is his and how much of it is Putin’s, but really it is all the same.”

Later, the US Treasury Department said flatly that “Putin has investments in Gunvor and may have access to Gunvor funds.” Timchenko, again denying any connection between Gunvor and Putin, called American sanctions against the company no more than an attempt to put pressure on the Russian regime. He had never held or managed assets for Putin, he said.

As with others of the inner circle, Timchenko’s rise was about a lot more than the president’s personal finances. It was about creating a slush fund for Putin’s KGB clan, aimed at preserving and projecting their power. “Of course, in Timchenko’s activities there are some interests of Putin,” said a former senior KGB officer, an associate of the Geneva money men. “But this is not necessarily in the form of some personal money. This can be black cash for funding party activities or a charity fund that can influence the electoral situation. It can be strategic resources.” Putin’s people were replicating the KGB-run systems of the past, in which oil exports had been a key source of black cash to fund the influence campaigns of the Communist Party and clandestine operations abroad.

Pugachev’s downfall

While the fortunes of Putin’s KGB cohort were rising, men like Pugachev were on the way out. He had become an anachronism, a symbol of a different era, of the Yeltsin years and the transition to Putin. The KGB men had, in Pugachev’s words, “taken over like a tsunami”.

Some time in Putin’s second term Pugachev let go of his office in the Kremlin. He didn’t seem to need it any more and it felt too conspicuous. He’d remained close to some degree with Putin, helping organise a vacation for him and Prince Albert of Monaco in the summer of 2007 in the Siberian wilderness region of Tuva. There the two men fished in the Yenisei River and Putin, famously, posed topless, dressed only in green khaki trousers and wielding a fishing rod.

Angling for power: Putin in the Yenisei River, 2007
Angling for power: Putin in the Yenisei River, 2007
RIA NOVOSTI

Yet Pugachev had been unable to kowtow to Putin like the yes-men around him. Always irreverent, he’d often told him what he thought. There’d always been a friction between them, as if Putin resented knowing he was in debt to Pugachev for helping bring him to power.

In the summer of 2008 he received a call from Putin asking him to stump up £270m in loans to help out Putin’s childhood friend Arkady Rotenberg. “He told me, ‘It’s only a loan. It will be paid back to you in six months,’” said Pugachev. Rotenberg had grown up with Putin scrapping on the streets of Leningrad, and then training together at the same judo gym. Although Rotenberg’s business interests had grown after Putin took the presidency, he wasn’t widely known. But that spring Rotenberg acquired a series of construction companies from Gazprom and gathered them under a holding company, Stroigazmontazh. Soon afterwards, Gazprom awarded Stroigazmontazh a multibillion-pound pipeline contract. The deal would make him a billionaire.

Martial law: Putin, centre, with Arkady Rotenberg, left, and another judo compatriot, c1985
Martial law: Putin, centre, with Arkady Rotenberg, left, and another judo compatriot, c1985
REX FEATURES

The only problem was that by the summer Rotenberg still hadn’t been able to come up with the cash to pay Gazprom for the construction companies. It was then that Putin called Pugachev, who said he’d readily assisted. Putin’s direct interest in the matter made it clear to Pugachev who was really behind Rotenberg’s construction business. “Putin wanted to bring Rotenberg in because he really could control him,” said Pugachev. “He was absolutely his.”

Rotenberg has denied his rising fortune had anything to do with his friendship with Putin. But he fast joined the ranks of Timchenko, Sechin and Kovalchuk as one of the close Putin allies taking over ever greater swathes of the economy. This was the final favour Pugachev did for Putin before he was suddenly thrown out in the cold. When the 2008-09 financial crisis ripped through Russia’s banking system only months after he lent Rotenberg the money, Pugachev found himself in trouble.

The financial institution Mezhprombank, which Pugachev had co-founded (but claimed no longer to be a direct owner of), was left deeply in the red. At first Russia’s central bank had stepped in swiftly, as it had across the entire crisis-hit Russian banking system, providing £1.1bn in bailout loans to keep Mezhprombank afloat. But by summer 2010, when Mezhprombank had still not paid down the central bank’s support, the debt became a mechanism by which Putin sought to seize control of two shipyards owned by Pugachev: Northern Shipyard and Baltiysky Zavod. Putin wanted to create a state shipbuilding corporation.

Rotenberg as he appears today
GETTY

Then, in October 2010, the central bank suddenly revoked Mezhprombank’s licence after it missed an interest payment. It filed suit to seize the shipyard stakes, and a Moscow court agreed behind closed doors to their sale for a fraction of their value to the state-controlled United Shipbuilding Corporation.

Once again the court system had allowed Putin’s allies to acquire strategic assets on the cheap.

Pugachev was soon facing the loss of the rest of his assets. The state began a criminal investigation alleging that he had caused Mezhprombank’s bankruptcy when he transferred £450m from an account he held at the bank into a Swiss account at the height of the crisis in 2008. The man who’d manoeuvred to bring Putin to the Kremlin had become expendable. Pugachev no longer fitted the regime’s objectives; he was no longer judged to be sufficiently loyal.

Russians in London

In September 2014, we were sitting in Pugachev’s office in Knightsbridge, central London, a playground for Russia’s rich. Pugachev said he wished he’d never rented an office there. “It’s disgusting,” he said. The concentration of Russian cash in the square mile around him was a bitter reminder of how deep Russia’s reach into the London elite had become.

The power of the Russian cash that had poured into Europe over the past decade was also becoming visible in the rifts between European Union countries over how far economic sanctions, imposed against Russia after its invasion of Crimea, should go. In the UK, a Foreign Office official was photographed with a briefing paper arguing that Britain must not “close London’s financial centre to Russians”.

For Pugachev, the danger was clear. The system of black cash to corrupt and buy off officials had extended to all the Russian billionaires who acted as fronts at the Kremlin’s command. “They all get calls to send money for this and for that. They all say, ‘We’ll give it. What else do you need?’ This is the system. It all depends on the first person, because he has unlimited power.”

For Pugachev, his manoeuvring to help propel Putin to power 20 years ago is now a constant source of remorse and regret. “I’ve learnt an important lesson,” he said when we talked at his home in France. “And that is: power is sacred. We all thought the people weren’t ready [for full democracy], and we would install Putin . . . Of course, we thought it was cool. We thought we’d saved the country from the communists.”

In the rush to help install Putin, though, Pugachev had ignored warnings that appointing someone from the KGB was “to enter a vicious circle”.

Those who believed they were working to introduce a free market and democracy had underestimated the enduring power of the security men.

“This is the tragedy of Russia,” said Pugachev.

Adapted from Putin’s People: How the KGB Took Back Russia and Then Took on the West by Catherine Belton (William Collins £25)

BBC2 docs probe lives of super rich

UK pubcaster BBC2 has picked up two factual shows detailing the lives of the super rich, titled Inside Monaco and The Countess & The Russian Billionaire.

Three-parter Inside Monaco will cover the season of grand events Monaco is famous for: the Grand Prix weekend, Red Cross Ball and the international yacht show. It sheds light on the amount of work that goes on behind the scenes to make this jet-set destination relevant to today’s rich and famous.

London-based indie Spun Gold TV and UK prodco Whisper will jointly develop the project for BBC2. Bridget Boseley, Jonathan Smith, Sunil Patel and Richard Gort will exec produce the project, with Michael Waldman directing.

Stand-alone doc The Countess & The Russian Billionaire steps inside the secret world of Russian oligarch Sergei Pugachev and his British partner, Countess Alexandra Tolstoy.

Filmed in the UK, France and Russia, it tells the story of their romance, unimaginable wealth and privileged lifestyle. Sergei, once known as Putin’s banker, amassed a US$15bn fortune, owning one of Russia’s largest private banks, shipyards, a coal mine and designer brands until he fell out of favour with the president.

With his empire now at risk from the Russian government and threats made to his life, Sergei fled to his chateau in France in a bid to fight back.

The Countess & the Russian Billionaire is produced by UK prodco Summer Films, with Lucy Hilman and Sam Whittaker both exec producing and directing.

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.

Top officials invited to The Hague Tribunal to testify in $12 bln case “Sergei Pugachev VS Russia”

President Putin and Senator Pugachev

Audit Chamber head Aleksei Kudrin ( Deputy Prime Minister of Russia from May 2000 to March 2004 and from September 2007 to September 2011 ) , chairman of Gazprom’s board of directors Viktor Zubkov ( Prime Minister of Russia, Vice Prime Minister from May 2008 to May 2012 ) and investment banker Oksana Reinhardt have been invited to testify in a case filed by former billionaire Sergei Pugachev, once a member of President Vladimir Putin’s inner circle, against the Russian Federation in Paris. The legal battle began when ex-senator Pugachev, who left Russian in 2011, demanded $12 billion from Russia for allegedly expropriating his assets. The lengthy proceedings have finally reached the decisive phase.

Mr Pugachev is represented by “Betto Perben Pradel Filhol

  • The hearing will take place between 12 and 17 November. Kudrin, Zubkov and Reinhardt have been asked to testify in person; and they may be cross-examined by the judge, as well as both the prosecution and the defense, according to two sources who spoke with The Bell. Pugachev and those invited to testify either declined to comment or didn’t respond to The Bell’s requests for comment.
  • Kudrin and Zubkov have been asked to testify in relation to plans from the early 2000s to build an elite hotel on Red Square. Companies close to Pugachev signed $300 worth of contracts with a firm created specially for the project and, in return, Pugachev was supposed to get a stake in the finished complex. Instead, in 2007, construction was frozen, and ownership of the site transferred to the Federal Security Service. Pugachev successfully sued the Ministry of Finance for $26.2 million in 2011, but this did not cover all of his losses.
Sergei Pugachev and Vladimir Putin
  • It seems likely that Reinhardt has been invited to talk about Mezhprombank, which was founded by Pugachev but lost its license in 2010 (when Pugachev no longer owned the bank). Reinhardt, who was an executive at Japanese bank Nomura at the time, has once before provided written legal testimony — in 2012 — relating to Pugachev and Mezhprombank’s loss of its banking license, and she might have a lot of interesting things to say, one source told The Bell.
  • Kudrin, Zubkov and Reinhardt received invitations rather than a formal summons, so they will not face any sanction should they chose not to comply. But if they are no-shows this could also influence the court’s decision, according to a lawyer at a European law firm who spoke with The Bell.
  • Lawsuits have flown between Russia and Pugachev for almost a decade, and have led to legal battles in several different countries. In the Hague, Pugachev is accusing Russia of expropriating four groups of assets that used to belong to him: shipbuilding companies, Yenisei Industrial Company, the Red Square development project, and land near Moscow. A criminal case has been filed in Russia against Pugachev in which he is accused of embezzlement. Finally, Russia’s Deposit Insurance Agency is using a London court to helpy it locate and seize Pugachev’s global assets. One former top executive from the Deposit Insurance Agency, who has a long-standing disagreement with Pugachev, was the subject of The Bell’s recent investigation into the FSB and money-laundering.

Why the world should care. The story of Pugachev is one of the most significant corporate conflicts in recent Russian history. While lawsuits heard abroad like this often shed fascinating light on how business is really done in Russia, unfortunately this will not be the case with Pugachev as the Russian Federation’s defense team has succeeded in ensuring proceedings take place behind closed doors. Any information that does emerge, however, will be worth watching.

Anastasia Stognei

21/10/2019 The Bell

The Rise and Fall of an FSB-Run Money Laundering Empire

The Bell and investigative website The Project looked into an FSB backed financial empire, and why it all fell apart.

As the head of the banking oversight department at Russia’s domestic intelligence agency, Colonel Kyrill Cherkalin wielded immense power: With a click of his fingers, he could cause bankruptcy or give a zombie bank a new lease of life. But then it all went wrong: earlier this year he was arrested on fraud charges and 12 billion rubles ($180 million) in cash and jewelry was found in his apartment and other places linked with him and his colleagues. The Bell and investigative website The Project looked into how Cherkalin became a key figure in the money laundering business, how he ran his financial empire, and why it all fell apart.

For a meeting at Moscow’s Vogue cafe with banker Alexander Zheleznyak in summer 2014, Cherkalin arrived in a chauffeured Range Rover wearing an expensive Rolex watch. At that moment, Zheleznyak was co-owner of Life, a large financial holding. Cherkalin immediately got down to business, suggesting that a retired officer from the Federal Security Services (FSB) be made vice-president at Probiznesbank (one of Life’s main assets) with an annual salary of $120,000, a private office, personal driver and assistant.

But this was a mere detail. Zheleznyak had already received the main demand: cede a large stake in Life to a company that will share its income with senior officials from the FSB and the Prosecutor General’s Office.

These details come from a statement from Zheleznyak, acquired by The Bell and The Project, which he gave under oath this year in the United States. His testimony is set to be used in legal proceedings that Life’s former owners have launched in the U.S. and Europe.

For the co-owners of Life, childhood friends Zheleznyak and Sergei Leontiev, dealings with Cherkalin ended very badly. After the meeting, the partners agreed to take part in the protection racket involving Probiznesbank, but they did not hand over shares in all their businesses. Later, their banking license were revoked by the regulator, criminal cases were started against them, and both fled Russia. The Central Bank believes that Life was engaged in illegal financial activity, while Zheleznyak insists they went bankrupt because of pressure from the authorities.

The tale of Life is just one in which Cherkalin, 38, and his FSB colleagues played starring roles. Cherkalin’s department at the FSB oversees the financial sector (banks, pension funds and insurance companies) and is one of the most powerful branches of the notorious Department K, which is responsible for economic security.

The two men arrested at the same time as Cherkalin were his former boss, Dmitry Frolov, and the more junior Andrei Vasiliev. While Cherkalin was still in his post when he was detained, Frolov and Vasiliev were dismissed several years earlier, after newspaper Novaya Gazeta published details of real estate allegedly owned by them on the shore of Lake Maggiore in Switzerland and Italy.

Protection racket

“Brilliant, very smart, well-versed in the field” is how Cherkalin was described by one major Russian banker. “But these are business guys, that’s what their [whole] generation is like.”

These sorts of commercially-minded FSB officers rose to power in the early 2000s at the same time as Russia’s money laundering business was booming, according to a source close to the FSB familiar with Cherkalin and his colleagues. “You know the principle: If you realize it’s useless to fight something, you have to lead it,” he explained.

Department K at the FSB had two main ways of interacting with banks: either they demanded a percentage of all withdrawals into cash (up to 0.2% of the transaction), or they took bribes and payoffs for specific violations, said a source close to the FSB.

To ensure the percentage was paid, whole protection rackets were established. This usually took the form of a retired FSB officer being given a position at the bank’s security team from where he could monitor cash flows. The ex-officer was also responsible for collecting information about the market. This scheme exactly matches what Zheleznyak said in his testimony about the ex-FSB officer that Cherkalin suggested employing at Probiznesbank.

The FSB did not respond to a request for comment.

At the end of May 2019, Cherkalin was visited in prison by prison monitors, who were surprised to see him wearing an expensive Givenchy tracksuit. Cherkalin’s cell was decorated with so many icons that some newspapers compared it to an Orthodox chapel.

Milking the money launderers

The system over which Cherkalin ruled was built up over several years, and was familiar to many bankers, particularly those involved in the money laundering business.

Mikhail Zavertyaev, a former со-owner and deputy chairman of Intelfinance bank, which collapsed in 2008, is one of those bankers. His relationship with Department K began in 2007 when he met Yevgeny Dvoskin, a mysterious figure described as a key player in the money laundering market with close ties to both the FSB and criminal gangs.

In an interview, Zavertyaev recalled how, in December 2007, he caught his chief accountant trying to arrange a credit line to a front company supposedly linked to Dvoskin. The following day, Dvoskin and his bodyguard, who spoke like a mafia enforcer, arrived at his offices in an ambulance. “Dvoskin came up to me, hit me in the ear, and I struck him with my elbow,” Zavertyaev said of the encounter. “He dropped to the floor and my first thought was that he had fallen on top of my suitcase with documents and that he would grab the suitcase and flee. I bent down to move the suitcase, he hit me with a pistol and I lost consciousness.”

Dvoskin has always maintained that Zavertyaev is a liar and, in court, argued that he couldn’t have assaulted Zavertyaev as he had been giving evidence in another criminal case at the moment the attack was supposed to have occurred.

Zavertyaev said the encounter did not end with his hospitalization after the fight. His wife’s car was torched shortly after and, over the next two months, about 11.7 billion rubles was extracted from Intelfinance. Still trying to get the money back, half a year later, Zavertyaev said he met Frolov, Cherkalin and Sergei Smirnov, deputy head of the FSB, at the Palazzo Ducale, a plush restaurant in downtown Moscow.

According to Zavertyaev, his dining partners were courteous, insisting he try the salad. From the conversation, he said he realized they were well acquainted with Dvoskin and were trying to understand what evidence he had of Dvoskin’s visit. They also wanted to convince him to stop trying to retrieve Intelfinance’s lost money. Eventually, he was offered financial compensation, which he said he refused. All Zavertyaev’s subsequent efforts to use the courts to get the money back have come to nothing.

Dvoskin was under the protection of the FSB, according to two sources close to Russian security agencies. When asked about his connections to the FSB, Dvoskin hung up the phone.

Cooperation between the FSB and banks carrying out money laundering was apparently extensive. The FSB “took the money launderers under its wing and made them its informers,” one source close to the security agency told The Bell and The Project. One of these informers he named as Aleksei Kulikov, the former co-owner of a small bank, Kreditimpeksbank, who is currently serving a 9-year prison sentence for fraud.

A source close to the FSB recalled that, at first glance, Kreditimpeksbank’s offices in the mid 2000s never looked like much: a half-empty banking hall, about 20 shabby rooms for staff and a gloomy looking security guard. But, according to the source, the bank was a big player on the money laundering market and the company’s security team was headed by a former Department K officer who received up to 3% commission on all financial transactions. Kreditimpeksbank had several run-ins with the Central Bank, but, each time, the FSB was able to help resolve the problem. According to the source, Kreditimpeksbank had several large clients with access to state funds and used fake contracts to move large amounts to construction firms in Turkey and Malta.

When Kreditimpeksbank was shut down by the regulator, it was estimated it had a 229-million-ruble black hole in its balance sheet and was conducting 13.5 billion rubles ($200 million) worth of suspicious deals every year. About 2 million rubles in cash was found in Kulikov’s apartment during a police search.

Mysterious disappearance

Cherkalin’s influence was not restricted to banks in the money laundering game. He was also in contact with both the heads of the major Russian banks and the senior officials running the state’s financial regulatory bodies.

Valery Miroshnikov, the former head of Russia’s Deposit Insurance Agency (DIA), which guarantees deposits in the case of bankruptcy, is currently a witness in the case against Cherkalin. Immediately after Cherkalin’s arrest, Miroshnikov left Russia (according to friends he first went to Australia, and then to Germany for healthcare reasons) — and has never returned. Two and a half months later, the DIA announced his resignation without giving a reason.

There are few details about the link between Cherkalin and Miroshnikov, but one source called them “good friends” and news outlet RBC has reported that investigators are looking into messages the two men exchanged. Miroshnikov is also alleged to have been involved in extortion. The former owner of Mezhprombank, Sergei Pugachev, was allegedly approached in 2011 by two men, one of whom worked for Miroshnikov, with a simple message: hand over $350 million or risk your own life and that of your family.

Pugachev’s lawyers have been telling this story in court since 2014 when the DIA began a legal drive to track down his assets and hold him liable for Mezhprombank’s debts. The Bell and The Project were unable to contact Miroshnikov, but he has previously denied authorizing the intimidation of Pugachev.

The DIA’s task is to manage the assets of banks that have collapsed or been shut down by the regulator, paying out deposits and seeking to recover assets. Over the 15 years of its existence, it has received more than 1 trillion rubles ($30 billion) from the Central Bank.

FSB infighting?

Many have pointed out the big gap between the severity of the allegations levelled at Cherkalin, and the charges on which they were formally arrested. Officially, Cherkalin and his colleagues are accused of stealing assets worth 499 million rubles ($7.7 million) from Moscow developer Sergei Glyadelkin, and Cherkalin is accused of taking a bribe worth 50 million rubles ($770,000).

Glyadelkin, who appears successfully to have stood up to the FSB, is not widely known, but has had a long career in Moscow. Until 2005, he was employed by a state company that distributed plots in downtown Moscow to developers and builders. But he also worked with Igor Chaika, the son of Prosecutor-General Yuri Chaika, and in Fall 2013, they set-up Techno R-Region, a waste management company. The Prosecutor General’s Office did not answer questions from The Bell about its relationship with Glyadelkin.

One former senior security officer said that the 12 billion rubles found during the detention of Cherkalin and his colleagues indicated “someone inside the intelligence services knew such a payment was in the offing.” The raid was deliberately planned to catch them with the cash, he said. “To keep such a sum of money for a long time is pointless; it looks like they were stockpiling it before selling it or sending it abroad.”

When asked why Cherkalin was arrested now, a businessman with good connections in the security services replied simply: “infighting” A major Russian banker, who knew both Cherkalin and Frolov, agrees. FSB director Alexander Bortnikov is 68 and the prospect of his retirement is fueling bitter battles among possible successors, according to another source. With the FSB the most powerful institution in modern Russia, victory means nothing short of gaining total control over the country.

Till Putin Do Us Part: Oligarch’s Ex-Wife Is Taking On Russia

The ex-wife of an exiled oligarch is at the center of his court battle with the Russian state, with each side accusing her of working for the other.

Galina Arkhipova is the former spouse of Sergei Pugachev, once an ally of Russian President Vladimir Putin. Pugachev is accused of siphoning more than $1 billion from a bailout of International Industrial Bank, which he co-founded. The ex-senator denies the allegations, which he calls part of a politically motivated campaign to confiscate his wealth.

The Deposit Insurance Agency, a Russian agency in charge of liquidating the bank, was in a London court this month to try to force Arkhipova to turn over paperwork in the case. The DIA accuses the divorcees of working together to protect Pugachev’s assets, an allegation he said was “an exceptional lie” in an email sent to Bloomberg.

In its filing to the London High Court, the DIA accuses Pugachev of asking her to make claims to frustrate confiscation orders. Pugachev, who now lives in France, makes his own allegation: that Arkhipova is acting in “collusion” with the DIA to “distract” his attention from his own lawsuit in Russia over its seizure of his assets. A legal representative for Pugachev repeated the allegation in email to Bloomberg.

Neither Pugachev nor his wife, Galina Arkhipova, were in the London court or had attorneys there.

The DIA and its attorneys at Hogan Lovells declined to comment on the case. Representatives for Arkhipova didn’t respond to emails requesting comment.

The London case — set for trial in early 2020 — revolves around a mansion in London’s upscale Chelsea neighborhood that he bought for 7.9 million pounds ($10 million) in 2011.

Five years ago, a London court froze his assets, beginning a global battle by the Russian state to claim what it says it’s owed. Arkhipova filed for divorce that same year, and started claiming her interests in some of their possessions.

The DIA is questioning whether the house was purchased while the couple was still married, and last week, its attorneys got an order forcing Arkhipova to hand over documents that could prove the timing of the end of the marriage.

The agency points to a July 2014 statement in a Moscow divorce court where Arkhipova said that she hadn’t had lived with Pugachev since 2002.

The DIA says Arkhipova is making only “desultory” attempts to disclose documents, which she says were lost when laptops were seized by Russian authorities in 2016.

Eddie Spence

THE FEDERAL RESERVE(S) An enquiry into how the FSB is ‘sheltering’ banks

 

PROEKT — ‘Corruption fights’ cycle

THE FEDERAL RESERVE(S)

An enquiry into how the FSB is ‘sheltering’ banks

By Anastasia Stogney and Roman Badanin, with Irina Malkova.

31 July 2019

Compiled jointly with The Bell

 

1 – How retired FSB officers become bankers

 

2 – How the FSB works along with ‘cashiers’

 

3 – ‘Bank-grabbing’ by official authorities

 

4 – Internal wars between special services

FSB officer Kirill Cherkalin and his former colleagues, who were recently arrested with 12 billion rubles in cash in their possession, were but a small part of a much larger ‘shelteringscheme targeting the Russian financial sector [known in Russian as kryshevanie: a form of criminal racket — translator’s note]. According to bankers who fell victim to the above, the scheme involved top managers of the DIA (Deposit Insurance Agency), legal specialists linked to the special services and dubious ‘cashiers’ [‘obnalshchiki’: entities offering to divert companies’ assets and cash them out illegally — translator’s note], who operated on an equal footing with high-ranking FSB officers.

 ‘We had an appointment at Café Vogue in Moscow. Cherkalin (Kirill Cherkalin, colonel of the FSB — editor’s note) arrived in a chauffeur-driven Range Rover. He wore plain clothes and had a Rolex on his wrist. I remember him paying the bill in full, which is rather unusual for those guys’, recalls Alexander Zhelezniak, former co-owner of the financial group Life. Zhelezniak, along with Life’s other shareholders, has been living abroad for four years now — ever since their banks’ licences have been withdrawn and criminal pursuits have been initiated against the banks’ shareholders and top managers.

The meeting with Cherkalin took place in the summer of 2014. Over lunch, the FSB officer proposed simple collaboration arrangements: Probiznesbank, one of the pillars of the Life Group, would appoint a retired FSB officer as vice-president, who would be paid an annual salary of $120,000 and would enjoy an office, a personal assistant and a company car with driver [information contained in Zhelezniak’s affidavit, which Proekt/The Bell were able to consult]. This was a precondition for a broader agreement to transfer a significant stake in the Life Group to a commercial entity, which would be sharing dividends with senior officials at the FSB and the Procurature.

In 2019, Zhelezniak, who was then in the United States, signed an affidavit to be produced before international courts, in which he described in detail the events around the Life Group [the former shareholders of Life have filed several lawsuits in Europe and the United States against Russian creditors. The editors were able to consult Zhelezniak’s affidavit and the statements of several other managers of the Life Group]. His affidavit as well as the accounts of other bankers have shed some light on how the FSB and other official authorities are ‘sheltering’ banks in Russia.

 

Excerpt from Alexander Zhelezniak’s affidavit

Mr. Cherkalin, a long-time civil servant, arrived at the meeting in a luxury car with driver, sporting a Rolex watch on his wrist. He confirmed that my letter to the FSB had been countersigned, and said that he was taking the case under his personal control. We then briefly discussed some logistical aspects. PRBB was to pay an annual salary of US$120,000 to the Vice-President of the Bank appointed by the FSB, who would also have a personal office, a company car with driver and a personal assistant.

 

Rickety-rackety-racket

‘Very bright, very intelligent, knowing the trade to a tee… I would have hired him without hesitation, were it not for all that happened…’ This is how one of the major Russian bankers describes Cherkalin. ‘But all these boys are profit-minded, their generation is like that’, he adds.

When the 38-year-old colonel was arrested in April of this year for corruption and fraud, he had already had made a fine career with the Economic Security Service of the FSB (SEB). When his meeting with Zhelezniak took place, he was already Head of Section ‘K’, which practically had all of the financial sector under its supervision: banks, pension funds, insurance companies.

During the search conducted at the colonel’s home, the police found 12 billion rubles (189.6 million dollars) in cash and valuables [according to another version, the 12 billion rubles were found at the homes of the three suspects]. This is an absolute record for property confiscated from a Russian official accused of corruption.

‘You know the famous principle, don’t you? When you are up against something that you cannot fight, then your best bet is to lead it’, explains an interviewee, who has personally known Cherkalin and many of his colleagues, speaking of the time when the FSB was seeking to establish its dominion over the banking market. This was in the early 2000s, when the ‘cashing-out’ market in Russia was booming.

 

Section ‘K’ had two modes of informal interaction with banks, according to a source close to the FSB: levying a commission of c. 0.1-0.2% on cashed out funds; collecting fixed bribes and pay offs for specific offences. ‘Cashiers’, i.e. banks that helped to cash out funds illegally, were required to set up a ‘subscription’ with section ‘K’, says a former co-owner of a major bank, whose licence has been withdrawn.

In order to receive its percentage in due course, the FSB would ‘out-post’ its man to the ‘shelter’: usually a retired FSB officer, who was most often appointed head of the bank’s economic security department. The ‘seconded’ officer was thus able to control all the financial flows, while ‘keeping it in the family’. He was furthermore usually responsible for collecting up-to-date information on the market [according to the same contact person].

The system was not closed: it would have been impossible to control the entire banking sector on one’s own. To control the ‘cashing-out’ market it was necessary to find cash, explains a source close to the FSB. To do this, Section ‘K’ had to collaborate with the regional sections of the FSB. In the regions, particularly in southern Russia, where the ‘grey’ market is quite large, it has always been cheaper and easier to obtain cash, according to the same source. ‘Let’s say a Moscow bank has a network of remote regional subsidiaries; the latter are responsible for accumulating cash and transferring it to the head office. The head office has access to bigger customers, to whom it sells that cash; part of the profit is then shared with the regional subsidiaries, since they have few customers of this calibre in the regions’, says our interviewee.

The transport of cash within Moscow was carried out thanks to the FSB’s special sections ‘Alpha’ and ‘Vympel’, whose members took on their working hours to give a hand. ‘They would take sick leave, and the transport vehicle was allegedly sent for technical revision’ [as indicated by a source close to the FSB, describing the logistics of the scheme]. Of course, it was also necessary to find an agreement with the FSB’s Internal Oversight Service, which was well aware of the business their colleagues were running.

 

What could it have to do with Navalny?

In May 2019 members of civil society came to visit colonel Cherkalin in his cell in Lefortovo prison, where he was held in pre-trial detention. The colonel, who greeted the visitors dressed in a Givenchy tracksuit, had meanwhile transformed his prison cell into a ‘monastic cell’, having covered every wall with icons [according to Kommersant magazine].

The FSB’s Economic Security Service (SEB)

SEB is one of the most influential services within the FSB. It is behind almost all the high-profile cases of recent years, from the arrest of Aleksei Uliukaev and of the Magomedov brothers to the ‘Argentine cocaine’ case. And the position of Head of SEB has been an outstanding career springboard for many.

 

Successive directors of the SEB

 

1998 Alexander Grigoriev

Member of the KGB section for the city of Leningrad since 1975. He served there alongside Vladimir Putin, with whom he was good friends, according to the media. Died in 2008.

 

1998 Nikolai Patrushev

Head of the Ministry of Security of Karelia (where Zaostrovtsev used to work). Head of the FSB from 1999 to 2008. Currently Secretary of the Security Council of the Russian Federation.

 

1999 Viktor Ivanov

Member of the KGB section for the city of Leningrad since the 1970s. In the mid-1990s, Head of the Directorate of Administrative Bodies at Saint-Petersburg’s Mayor’s Office (Putin was then deputy to the Mayor of Saint-Petersburg, A. Sobchak). Headed the FSKN (Anti-Narcotics Service) until 2016.

 

2000 Yury Zaostrovtsev

Graduate of the KGB School of Leningrad. Worked at the Ministry of Security of Karelia in the early 1990s (which was headed at that time by Patrushev). Acquainted with Putin (cf. Kommersant), who at the time when Zaostrovtsev worked in Karelia was head of the external relations committee at the Saint-Petersburg’s Mayor’s Office.

 

2004 Alexander Bortnikov

Director in office of the FSB since 2008.

 

2008 Yury Yakovlev

Left SEB almost at the same time as Voronin (RBK). Currently Vice-President of Rosatom in charge of security.

 

2016 Sergei Korolev

Acting Director of SEB. Lobbied to have Tkachev appointed [according to data from the Investigation Management Centre (TsUR)].

 Section ‘K’

One of the main sections of SEB. In charge of supervising banks, insurance companies and pension funds.

 Up to 2016

Viktor Voronin

Resigned when one of his subordinates became involved in a case of smuggling. Included in the ‘Magnitsky Act’. Gave the green light to launch criminal proceedings against Hermitage Capital. In 2019 was appointed Deputy Director General in charge of the Interaction with State Bodies at a contractor of Rosatom’s.

 

As of 2016

Ivan Tkachev

Acting Head of Section ‘K’. Did his military service in the border guards in Karelia, together with Oleg Feoktistov, former deputy director of the Internal Oversight Service of the FSB [according to  data from TsUR]. Before being appointed to Section ‘K’, he headed the 6th Office of the FSB Internal Oversight Service, known as ‘Sechin’s commandos’ [nickname given by the TSUR and Proekt/The Bell interviewees]. He personally issued the order to have Uliukaev’s vehicle intercepted.

 

Banking department

Part of Section ‘K’

 

Up to 2013

Dmitry Frolov

The newspaper Novaia Gazeta discovered that his family owns an undeclared house as well as four plots of land in Italy. Shortly before the article went to press Frolov was discharged for ‘loss of confidence’.

 

As of 2016

Kirill Cherkalin

Succeeded Frolov. ‘Cherkalin was, effectively, raised by Frolov’ [according to an interviewee of Proekt/The Bell]. Arrested in spring 2019.

Until then, Cherkalin did not give the impression of being a particularly religious man to those who met him. On the few photos to be found on Telegram channels, he looks more like a bon viveur, posing in European resorts, dressed in well-cut clothes and carrying bags from expensive shops. ‘He knew how to be affable, but he was the type of person with whom you would immediately want to cut off any connection’, Zhelezniak recalls today. When former co-owners of the Life group and childhood friends Alexander Zhelezniak and Sergei Leontiev met Cherkalin, the result was very bad indeed. After the meeting at Café Vogue in 2014, the partners agreed to a ‘secondment’ to their Probiznesbank. Zhelezniak himself sent a letter to that end to Viktor Voronin, who at the time was head of Section ‘K’. According to Zhelezniak, he did so upon the advice of one Kamo Avagumian, co-owner of the Avilon car dealership, a VIP client of the bank and a long-standing acquaintance of Zhelezniak’s [the editors have sent an information request to Avilon, which has remained unanswered so far]. The said letter, so Zhelezniak claims, was countersigned by Voronin [Proekt/The Bell sent a request for information to the postal address of Fizpribor, where Voronin is currently employed, having left the Service in 2016. We have not received any answer so far]. But the owners of Life refused to give away stock.

 

Zhelezniak claims that at the time when these events occurred the group’s banks were financially stable, even though in 2014 the Life Group incurred losses of several billion rubles. Probiznesbank’s  figures for arrears on loans issued to natural and legal persons were very much above the national average [according to Vedomsti]. Towards the end of the year, the rating agency Finch cancelled Probiznesbank’s ratings. At the time Finch’s concerns were primarily related to the securities portfolio in which Probiznesbank had invested 47 billion rubles, that is nearly half of its total assets; the majority of these securities were deposited in Cypriot depositories. The crisis meant that the other banks were selling frantically to stay liquid, while Probiznesbank‘s portfolio was the only one to remain stalled [recalls Fitch analyst Alexander Danilov]. This also raised some questions at the Central Bank.

 

In September 2014 the banking regulator withdrew the licence of Bank24.ru, which belonged to the owners of the Life Group. The following year, it withdrew the licence of Probiznesbank itself. Bank24.ru allegedly lost its license for violating laws on money laundering, although at the time of the withdrawal the bank’s assets were 2 billion rubles in excess of its liabilities. According to Zhelezniak, the bank had no money-laundering activity; the regulator held it responsible because of ‘a mere five banking transactions, of which the bank failed to notify the Central Bank in due time’. According to the information provided by the regulator, Probiznesbank invested funds in ‘low quality assets’ and ‘lost all its capital’; furthermore the subsequently appointed bankruptcy managers claimed to have uncovered large-scale transactions showing signs of misappropriation. The regulator ultimately estimated that the ‘hole’ in Probiznesbank‘s accounts amounted to nearly 35 billion rubles. ‘Today’s Russia is not yet ready for a group like Life’, Leontiev wrote in the company’s internal blog. ‘It seems that the time has not yet come for companies like Life in this country. This is why for the next fifty years I am going to build a Life elsewhere on the globe.’ Neither he nor Zhelezniak have ever returned to Russia since.

 

In his testimony, Zhelezniak claims that their banking business withered away for political reasons. In 2012 Life’s directors invited Alexei Navalny to a strategy session designed for managers. At that time Bank24.ru, which belonged to the group, proposed to support the opposition leader by secretly launching the ‘Navalny credit card’, whereby 1% of the amount of each purchase made with the card was donated to Navalny’s Anti-Corruption Fund. [Navalny’s spokesperson Kira Iarmych indicated that this idea had indeed been discussed with the FBK Fund, but has never been put into practice and no transfers have ever taken place.] The promotional action did not remain secret for very long: as soon as the media heard of it, Alexei Pliakin, former head of department at the Central Bank, warned Zhelezniak that such kind of collaboration would raise ‘numerous questions’ at the Central Bank and at the Procurature [so Zhelezniak claimed in his testimony; the Central Bank’s press service did not wish to comment on this episode]. The idea of supporting Navalny had to be abandoned, but ‘the Kremlin did not forget the incident’ [so Zhelezniak said in his testimony].

 

The banks’ licences were thus withdrawn, but Leontiev’s and Zhelezniak’s problems were just beginning.

 

The FSB and the ‘cashing out’ activity

 

The system which the Life group allegedly fell victim to, had obviously taken years to take root. Banks had to live with it, particularly those that were making money on ‘cashing out’ activities [according to Proekt/The Bell’s contacts in the financial sector].

 

For Mikhail Zavertiaev, former chairman of the board of Intelfinans bank, which perished in 2008, interaction with Section ‘K’ began with a meeting with Evgueny Dvoskin. Dvoskin, one of Russia’s most odious bankers, had once been designated by Bloomberg as ‘one of the key figures in the “cashing out” business’, with alleged links to the FSB and the mafia.

 

In early December 2007 two individuals entered Zavertiaev’s office; oddly enough, they had arrived at the bank’s headquarters in an ambulance. The first of the two was Dvoskin, the second was his bodyguard. ‘Walked in with a maffioso gait, then said: “So, which one here doesn’t know how to talk to people politely? That one?”’, this is how Zavertiaev remembers Dvoskin’s sidekick. The day before their visit, the banker reports having caught his chief accountant in a blatant attempt to grant a loan to a shell company, supposedly affiliated with Dvoskin.

‘Dvoskin came up to me and slapped me. I gave him an elbow strike. He collapsed. The only thought that crossed my mind at the moment was: he fell next to my briefcase, which contained important documents; he will take them and run away. I leaned over to move the case, but I was hit with a pistol’s butt and lost consciousness’, this was Zavertiaev’s version of the events.

According to Zavertiaev’s estimate, nearly 11.7 billion rubles were withdrawn from the bank in the course of the following two months (out of which 10 million were finally charged to Intelfinans’ chief accountant, who was sentenced to three years’ suspended imprisonment). During the same period, unknown persons set fire to the car belonging to Zavertiaev’s wife. The banker was forced to transfer his family to his country house and hire bodyguards to protect them [according to him].

Zavertiaev claims that the funds were misappropriated by means of a forged signature, although he had personally, while in hospital, ‘informed the Central Bank that the bank was being robbed, and requested a licence suspension in order to prevent acts of fraud’. But the regulator did not want to accede to his request: ‘Central Bank Vice-President Guennady Melikian explained that they had never been confronted with such requests and did not know how to act in these circumstances’ [said Zavertiaev]. Melikian then told the newspaper Vedomosti that ‘in the case of Intelfinans the reaction was actually very prompt, especially given that everyone was on holiday until 10 January’. When the licence was withdrawn, the Central Bank stated that the bank’s managers and employees had ‘effectively put an end to the bank’s activities, which resulted in a situation likely to harm the interests of the bank’s creditors and depositors’.

About six months after the incident Zavertiaev had a meeting with two members of Section ‘K’: Frolov and Cherkalin. Moreover, the former banker claims that the FSB’s first deputy head, Sergei Smirnov, was also present.

The meeting took place at the restaurant Palazzo Ducale on Tverskoi Boulevard. ‘What will you have? Maybe a small salad? Only water? Come, at least have a small salad!’ — the people on the other end were wonderfully considerate, recalls Zavertiaev. According to him, the interview had two objectives: to understand whether he had any evidence of Dvoskin’s visit, and if so, what kind of evidence; and, on the other hand, to convince him to renounce any attempt to recover the embezzled money. It seemed to him that the FSB officials knew Dvoskin very well. ‘Come on, stop worrying! We have already thrown him out’, Smirnov would say trying to reassure Zavertiaev and speaking of Dvoskin’s bodyguard. At the end of the interview, the FSB people allegedly offered the banker monetary compensation for ownership of his business.

Zavertiaev recounts having launched legal proceedings against everyone, and especially against Dvoskin, with the relentless determination of a desperate man. But in the end, he did not win a single case. Dvoskin was able to prove that he could not have assaulted Zavertiaev, because he was at that time testifying in another criminal case, in which he was a claimant. His statements were confirmed by investigators and by the call logs from his mobile phone. In answering questions from Proekt and The Bell, Dvoskin said that Zavertiaev had made it all up, that the alleged episode with the fight never took place, and that they first met during the judicial confrontation.

Dvoskin was under FSB protection, said two sources close to two distinct public authorities. In the interview with Proekt and The Bell Dvoskin reminded that he was wanted abroad [Dvoskin’s bank is known to have fallen under foreign sanctions because of its presence in the Crimea]; when asked if he did indeed enjoy FSB protection, hung up the phone. ‘The Service has always kept “cashiers” on hand; it turned them into informants, to avoid having to put them in prison’, explained one of our interviewees. Among the ‘cashiers’ he mentioned the former co-owner of Kreditimpeksbank Alexei Kulikov, who was sentenced several years ago to nine years’ imprisonment for fraud. At first glance, Kreditimpeksbank made a poor impression: a half-empty main room, about twenty poorly furnished offices and a grim-looking guard. But in the mid-2000s, this bank held a significant share of the ‘cashing out’ market, according to an interviewee close to the FSB. As in many other banks, the security department was headed by a retiree of Section ‘K’. His commission was 0.2-3% on all transactions carried out by the bank. Several times the Central Bank had expressed concerns about Kreditimpeksbank, but the FSB’s banking department had managed to resolve the issue [according to a Proekt/TheBell interviewee]. At the moment when the bank’s licence was withdrawn, missing funds were estimated at 229 million rubles; nearly two million rubles were found at Kulikov’s home.

It would seem that the supposed covert activities of the FSB’s banking department were not limited to controlling the ‘cashing out’ market. Cherkalin was in close contact with the managers of almost all major banks in Russia. Aleksei Khotin, the former owner of the recently bankrupt Ugra Bank [according to RosBiznesKonsalting, Khotin was placed under house arrest in the case concerning the misappropriation of Ugra funds], testified in court that for three years he had been paying a commission to Cherkalin in exchange for his protection [this information was published by RosBiznesKonsalting, but Khotine’s defense counsel denies it and affirms they have filed a complaint against RosBiznesKonsalting].

The protection of the FSB, as shown by the example of Ugra, was in no way a guarantee of the bank’s continued survival. Especially if one considers that for the members of Section ‘K’ the bankruptcy of a bank was just another opportunity to make money.

 

A case of dough or DIA (Deposit Insurance Agency)

‘$350 million is not such a high price to pay for your own life and that of your loved ones’, this was the proposal made to former Mezhprombank owner Sergei Pugachev in 2011 by subordinates of the DIA’s former Deputy Director Valery Miroshnikov. [This is what Sergei Pugachev himself told us. Sergei Pugachev’s lawyers have been telling this story before various courts since 2014, when the DIA began hunting down the former banker’s assets. Miroshnikov has already responded to these complaints, including in court, where he refuted all of Pugachev’s accusations and stated that Pugachev had himself threatened him with death via third persons].

The DIA deals with banks that have already gone bankrupt: the agency’s primary role is to collect the funds that have got ‘stuck’ in these banks. However, in order to do this, it is necessary to draw from the State’s pocket. The DIA came into existence in 2004. In fifteen years of liquidating and restructuring Russian banks, $500 billion have somehow left the banking system [information published by The Republic based on the Russian balance of payments]; furthermore the Agency itself received an additional 1 trillion rubles (nearly $16 billion) [according to the DIA’s own data] for the purpose of restructuring failed banks. Such amounts leave quite some room for manoeuvring…

The testimonies of Zhelezniak and of another banker show that Miroshnikov knew Cherkalin well. Zhelezniak remembers a meeting at which both were present. Without any embarrassment, the two officials discussed in front of their interlocutor ‘which bankruptcy manager they were going to appoint to which bankrupt bank’.

Miroshnikov was called as a witness in the Cherkalin case: this decision was taken by the investigator after examining the telephone correspondence between the two men [according to RosBiznesKonsalting]. But immediately after Cherkalin’s arrest, Miroshnikov left Russia never to return (according to his entourage, he first went to Australia, then to Germany ‘to receive medical treatment’). Two months later, the Agency announced his resignation, without giving any reasons.

Pugachev, for his part, even wrote a letter to Vladimir Putin to complain of DIA officials who allegedly tried to extort $350 million from him. In return for that money, Miroshnikov’s representatives offered their services to preserve a part of Pugachev’s assets not linked to Mezhprombank, but pledged as collateral. According to Pugachev, Cherkalin’s men were acting in tandem with those of the DIA. The proposed agreement was extremely simple. ‘Back then, following the bankruptcy of Mezhprombank, a criminal investigation was opened against X, and I was clearly told that this circle of “unidentified” people could quickly become “identified” and that I could easily become one of them’, says Pugachev. The FSB men reportedly asked for $20 million to prevent this from happening. Pugachev says he refused to pay.

Pugachev certainly has at least one reason to hold a grudge against the Agency and, possibly, to slander it: after he left Russia, the DIA managed to obtain a freezing order against his assets for nearly $2 billion. But Zhelezniak’s testimony, too, provides very similar details on the collaboration between Cherkalin and Miroshnikov.

In 2016 Probiznesbank lost its license and its owners left Russia. Soon after Zhelezniak was reportedly contacted by Miroshnikov, who suggested that he should get in touch with a certain Artem Zuev [Zhelezniak showed the editors the corresponding SMS sent from Miroshnikov’s number]. Miroshnikov described Zuev as a partner in Quorum Group, but Zhelezniak told the court in his statement that Zuev was ‘a well-known corporate raider’. The other Quorum partner [according to SPARK registry data] is the lawyer Andrei Pavlov, made famous by the part he played in Sergei Magnitsky’s case, as a result of which he fell under US sanctions. Pavlov, according to Novaia Gazeta’s publications, was closely linked to some members of law enforcement agencies.

The meeting with Zuev was scheduled to take place at Zurich airport in Switzerland. Zuev insisted that the interview be conducted face-to-face and Zhelezniak’s lawyer had to wait at a distance. Zuev informed Zhelezniak that he had a mandate to act on behalf of Quorum, which had been appointed bankruptcy manager of Probiznesbank. According to Zuev, his mandate had received the approval  of Miroshnikov and Cherkalin. Their emissary therefore proposed a deal: Leontiev and Zhelezniak would make a complete list of their assets, return to Moscow and cooperate with the Russian authorities. They would be sentenced to three to four years’ house arrest, after which they would be paid  a compensation from the mass of recovered assets, of which Quorum was going, of course, to  have its share. Zuev promised that if they did not comply, Zhelezniak and Leontiev would be ‘persecuted globally’. ‘You will not have a minute of peace, imagine the kind life it will be!’, he is alleged to have said. After this meeting in Zurich, Zhelezniak phoned Miroshnikov and asked him what the purpose of that meeting had been. ‘We want to help you’ Miroshnikov answered [from Zhelezniak’s affidavit].

The owners of Life rejected this ‘help’; Quorum is still tracking their assets around the world. Recently, the former managers of Probiznesbank were sentenced to real prison terms: from three to seven years’ imprisonment [according to Kommersant]. It was Miroshnikov himself who sent Voronin a request to initiate criminal proceedings against Life [Proekt/TheBell are in possession of this document].

 

Struggles within the species

The amounts for which Cherkalin and his fellow FSB men were sentenced to prison are out of proportion with the scale of their activities and with the 12 billion in cash found at their homes. Cherkalin was charged with receiving a bribe of 50 million rubles; the other two men under investigation were accused of seizing assets belonging to Sergei Gliadelkin, a prominent Moscow promoter, for a total amount of 499 million rubles.

The man in question is not widely known, but he has been for a long time one of the major players on the very select real estate development market in Moscow. The newspaper Ekspress-Gazeta, where his photos pop up from time to time, thanks to his wife Evgenia Kriukova, an actress of the Mossovet, describes him as ‘a workaholic, who has made millions sweating his brow’. Before 2005, Gliadelkin was head of the state-owned company Moskva-Tsentr, where he was in charge of supervising the construction in Moscow’s city centre; among other things, he was responsible for distributing land in the Ostozhenka district, located within the famous golden triangle, where the price per square meter reaches unrivalled levels.

Cherkalin’s arrest is not the first case due to Gliadelkin. In 2010 a criminal investigation was launched at his request against Moscow’s Deputy Mayor Alexander Riabinin. When the lawyer defending Riabinin — whose client had just been sentenced to three-years’ suspended imprisonment — asked Gliadelkin at the hearing how long he had been working for the FSB and whether he had received official recognition for his work, Gliadelkin replied: ‘I will not answer these questions because I have signed a non-disclosure agreement’.

In addition to real estate development, Gliadelkin has some profitable activity in other areas. In 2017, the telephone number of Avenue Group, one of Gliadelkin’s companies, could be seen on the ‘golden’ public paying toilets, installed throughout the capital to replace the old blue cabins, which were judged obsolete and ‘outdated’. Gliadelkin is also said to have carried out joint projects with Igor Chaika, the son of the Prosecutor General of the Russian Federation, Yuri Chaika. [In 2013, Chaika and Gliadelkin registered a company called Tekhno-R-Region, whose proposed activities involved waste collection and treatment. Chaika declared in 2017 that he has never taken part in any waste treatment activities, and after the investigation conducted by the Anti-Corruption Fund, Chaika’s holdings sold their shares in Tekhno-R-Region to Gliadelkin’s managers. Nevertheless, Chaika subsequently acquired a stake in one of the largest companies in the waste recycling sector, Khartia. One of the waste treatment plants had been previously run by the owner of the company that won the tender for installing the infamous ‘golden’ toilets.]

Chaika Sr. is also mentioned in Zhelezniak’s affidavit. According to the banker, the share of Life‘s capital they tried to obtain from him was intended for the ‘two birdies’, who in exchange would have been able to halt the proceedings initiated against the group’s shareholders. The ‘two birdies’ was a way to refer to Prosecutor General Chaika, on the one hand, and to the Head of the FSB’s economic security service Voronin, on the other hand [according to Zhelezniak] (‘Chaika’ means ‘seagull’ in Russian and ‘Voronin’ is a name derived from ‘crow’ — translator’s note). The Procurator General’s Office did not wish to comment or answer Proekt/The Bell’s questions.

Voronin’s former position as Head of Section ‘K’ is now held by General Ivan Tkachev, famous for his role in investigating most of the major corruption cases of recent times. He already had Cherkalin in his sights when he was still with the FSB Internal Oversight Service [according to RBK]. The media reported that Tkachev and his supervisor Sergei Korolev, the current Head of SEB, were in conflict with the men of Voronin and his friend Smirnov, deputy head of the FSB — that very same man who, according to banker Zavertiaev, attended the interview at the Palazzo Ducale restaurant. [The conflict between the two groups within the FSB had been described, among others, by Open Media.]

It is a struggle within the species’, laconically concluded an entrepreneur enjoying a good relationship with law enforcement authorities. A perception corroborated by a leading Russian banker who knew the arrested officers well.

In just over two years’ time the current head of the FSB Alexander Bortnikov will celebrate his 70th birthday, reaching the age limit for his position. It means that the clan that will take the upper hand in the fight for Bortnikov’s chair ‘will have it all under control’[says a leading Russian banker, who knew Frolov and Cherkalin well].

Miroshnikov is ‘a very rich person according to his entourage. We reviewed his real estate assets only the properties he owns in Russia. Miroshnikov’s son Maxim, barely 22 years old, owns a 400m2 house and a plot of land in the village of Fominskoe, not far from Troitsk. According to official documents, it was a gift from Valery Miroshnikov’s mother, Tatiana Miroshnikova. Mrs. Miroshnikova is 68 years old and has never had any economic activity (according to the SPARK register), which does not prevent her from owning three apartments in the centre of Moscow: two in the Imperskii Dom residence in Yakimanka Street, with a total surface area of over 500m2, and one 200m2 apartment in the Ostozhenka Park Palace residence. Miroshnikov himself owns a luxury apartment on the 6th floor of the La Defence residence in the Khamovniki district. The whole could be worth more than a billion rubles.