Sergei Pugachev in pursuit of Russian billions

The former close friend of President Vladimir Putin, residing in France, claims being victim of an orderly expropriation of assets.

The epilogue of the endless judicial battle between the former Russian oligarch Sergei Pugachev and the Russian Federation is yet to be seen. But the decision of the Court of Arbitration of Paris, expected mid-July, concerning imposition of interim measures against the Russian party will give the first indication as to Pugachev’s chances to one day receive the billions of dollars that he claims in compensation of the « expropriation», of which, according to him, he was a victim.

With these precautionary measures the former close friend of Vladimir Putin hopes to avoid the misadventure of the Yukos case: in July 2014 the former shareholders of the oil company of Mikhail Khodorkovsky were granted $ 50 billion (€ 46 billion) of compensation by the Court of Arbitration of Netherlands, but since then they have not succeeded in achieving the implementation of the arbitration award.

At the hearing on the 17 of April, Pugachev asked the court to impose guarantees on Russia. It was a choice of three: the placement of € 5.5 billion in cash on an escrow account; the deposition of 12 billion in State guarantees; the preliminary freeze of assets abroad. « If Russia never pays up, why should I bother? », summarized the former oligarch when he was in Paris, before returning to Côte d’Azur where he currently resides.

Shipyards, mines, properties…

The case in itself is above average, with the sums of money involved and its political  background. Former senator for the Siberian Republic of Tuva, French citizen as of 2009 (he renounced his Russian citizenship in 2012), the businessman has been claiming at least € 11 billion from Russia since 2015 in accordance with a bilateral investment treaty signed in 1989 between France and the Soviet Union, of which Russia is the successor state. The Permanent Court of Arbitration at the Hague, qualified to judge litigations relating to this treaty, accepted Pugachev’s request to hold hearings in Paris for security reasons: in London, where he lived before settling in France for good, there is still an on-going investigation concerning the discovery of suspicious devices under his car.

Essentially Sergei Pugachev believes that he was a victim of a methodical expropriation of the flagship of his commercial empire built in the 1990s: shipyards in St. Petersburg, charcoal mines in Siberia, property and land practically on the Red Square… In other words, a total of at least € 11 billion.

Russia contests the accusations, and takes legal action against Pugachev for fraud and embezzlement. In particular Russia accuses him of having subtracted a billion dollars from his bank, Mezhprombank, before in went bankrupt in 2010. Pugachev continues to deny the allegations, arguing that he is not at the head of the company as of 2001. In a Russia where the idea of an independent justice seems near to impossible, it is hardly an option to ascertain the reality of the charges. The only thing that counts is disgrace, always validated by the political power.

In the 1990s Sergei Pugachev was a member of the inner circle of Yeltsin, who were the first to have open accounts in his bank. He was later by Vladimir Putin’s side when he was brought to power. He even claims – with a tinge of exaggeration – being his mentor during the first years. What is then the reason for this brutal disposition of someone who was once a loyal servant of the system? In January 2015 he explained to Le Monde that he has always been an «opponent of tête-à-tête» trying to change the political direction of the Kremlin’s master from within. In no way a threat to Vladimir Putin.

Overly ostensible investments

The businessman introduces two explications: first, it is the desire of the members of the president’s circle, the next generation of oligarchs led by the powerful Igor Sechin, to appropriate the gold mine; second is the «complex» of the president anxious to erase the memory of his first, tentative steps in Kremlin. « From the group of those who witnessed and sometimes contributed to his passage from being a nobody to being a president, there was no one left but me, explained the businessman in 2015. He wants that time to be forgotten. »

His downfall might also have been precipitated by his tendency to invest too ostensibly in Europe, especially in France. In the 2000s, at the peak of his power, Pugachev got himself a luxury food shop, Hédiard, while his son bought a daily newspaper France-Soir. Both went bust.

Today the fallen oligarch seems optimistic about the results of the arbitration, expected in 2018. « It will all be very simple: to whom does the property belong today? Where is the money that should have been paid in compensation? » His main asset are the documents proving that the Russian government had undertaken to buy the expropriated assets. One of the documents, the minutes of the ministerial meeting, read by Le Monde, proposes a plan of actions to facilitate the sale of shipyards by Pugachev, that in particular suggests that the FSB, Russian security service, « begins inspections (…) for criminal evidence» withing the company’s management.

The Russian party remains silent – an unusual practice in these multi-billion-dollar battles where the public image matters at least as much as the jousting between the lawyers.

Source: Le Monde