Pugachev for the Financial Times: Businessmen are ‘serfs’ in Putin’s Russia

An excerpt from the article published by the Financial Times following the interview with Sergei Pugachev.

A former close associate of Vladimir Putin has said Russian businessmen were all now “serfs” who belonged to the president, with none of the country’s companies beyond his reach.

Sergei Pugachev, who was once so close to Mr Putin that he was known as the “Kremlin’s banker”, made the comments in his first interview since the state seized his multibillion-dollar ship building empire in 2012.

Speaking to the Financial Times, Mr Pugachev warned that there were no longer any “untouchables” in a Russian business landscape increasingly dominated by Mr Putin. The Russian economy, he argued, had been transformed into a feudal system where businessmen were only nominal owners of their assets.

“Today in Russia there is no private property. There are only serfs who belong to Putin,” he said.

Mr Pugachev’s comments have fresh resonance amid the ongoing dispossession of another Moscow tycoon, Vladimir Yevtushenkov, whose arrest last month – and a subsequent court decision to seize shares in his Bashneft oil major – is still sending shudders through the country’s business community.

That event has been interpreted by many observers as a shattering of the rules that have governed relations between the Kremlin and the country’s oligarchs in the post-Soviet era.

Mr Pugachev – whose business interests once spanned banking, construction and shipbuilding – was a towering figure of those years. He was a member of former president Boris Yeltsin’s inner circle and then became a close confidant of Mr Putin.

When the former KGB officer became president in 2000, powerful holdovers from the Yeltsin era managed to maintain some independence. But after Mr Putin embarked on a campaign to retake state control of key parts of the economy the borders between business and the Kremlin began to be erased.

That process, Mr Pugachev argued, had now accelerated as the strain of western sanctions against Russia over its intervention in Ukraine increases.

“Now there is Putin and there are his lieutenants who carry out his orders – and all cash generated is put on the balance of Putin,” he said. “The country is in a state of war. And therefore big business cannot live as before. It has to live under military rules.”

Mr Pugachev’s own problems began with the 2010 collapse of Mezhprombank, the top 30 lender he founded. He fled Russia in 2011 for exile in London as the state moved to take over his shipyards, as part of efforts to recover funds from the bank. Last year, a Moscow court issued a warrant for his arrest, blaming him for the bank’s failure.

In his first public comments about the charges, Mr Pugachev denied any responsibility. Instead, he claimed Mezhprombank’s bankruptcy was the result of a Kremlin campaign to seize the controlling stakes he held in Russia’s two biggest and most modern shipyards at a knockdown price.

The businessman is preparing to present evidence in a London court that he said will prove the bankruptcy was part of a state “raid” on his empire, as he seeks to fend off a freezing order on his international assets issued in July by Russia’s Deposit Insurance Agency.

Now there is Putin and there are his lieutenants who carry out his orders – and all cash generated is put on the balance of Putin. The country is in a state of war. And therefore big business cannot live as before. It has to live under military rules

At the heart of the case is some $2.1bn in unpaid debts owed by Mezhprombank, some of which resulted from emergency Central Bank liquidity support provided in late 2008 in the midst of the global financial crisis.

The government has alleged Mr Pugachev was behind a series of transactions that damaged the bank’s balance sheet, including the transfer of $700m in Central Bank bailout funds to an account in Switzerland controlled by his son.

Mr Pugachev said the transaction did not involve the Central Bank funds and was related to a commercial investment.

He also claimed he had struck an agreement with the Central Bank to repay Mezhprombank’s debt with the proceeds from the sale of two St Petersburg shipyards – Severnaya Verf and Baltiisky Zavod. Those assets had been valued by BDO, the international audit firm, at $3.5bn. Nomura, an investment bank, valued them at between $2.2bn and $4.2bn – more than enough to cover the roughly $1bn owed to the Central Bank.

But the Central Bank revoked the bank’s licence when it missed an interest payment in October 2010. Soon afterward, it filed suit to seize Mr Pugachev’s shipyard stakes, triggering a chain of events that ended in their forced sale in 2012.

They were sold to the state-controlled United Shipbuilding Corporation for $415m and $7.5m, respectively – a fraction of the BDO valuation. At the time, USC was chaired by Igor Sechin – a close Putin ally who now heads Rosneft, the state oil company that many analysts believe is now poised to scoop up Mr Yevtushenkov’s Bashneft stake.

More broadly, though, he viewed the loss of his empire as part of a campaign that began with the state’s attack in 2003 on Mikhail Khodorkovsky’s Yukos oil business and has extended to today’s seizure of Mr Yevtushenkov’s assets. Driving it forward, he argued, is a Russian leader with a fundamental misunderstanding of the concept of private property – as demonstrated during a visit to a nuclear icebreaker produced by his shipyards, the country’s first in 35 years.

“I remember his amazement,” Mr Pugachev recalled. “There were swimming pools, gardens, an orangery on board. This was an icebreaker worth more than $1bn. But for him, it was incomprehensible. In his view, a private owner can make buns but he can’t make icebreakers and military ships.

Mr Putin, he said, still had the mentality of “a Soviet person, a chekist,” – the Russian word for a secret policeman.

“There is no point in anyone looking for a mistake by Mr Yevtushenkov,” he said. “This is just the system starting to eat itself.”