Within a decade he had become a millionaire; within 20 years he had turned himself by some accounts into one of the wealthiest people in the world. This was not a conventional entrepreneurial rags-to-riches progression. Mr Putin used his power to make connections with the business world, help them to prosper and shield them from bureaucracy.
As Mr Putin’s friends grew rich, so, says the US, — despite his denials — did he. US investigators believe that his wealth is hidden. Many intelligence analysts and players in Russian business believe that his fortune has been parked with loyal oligarchs, held in trust, perhaps for life after the Kremlin.
“Money doesn’t go into a Putin account; oligarchs hold his money as his trustees,” claims Bill Browder, the British-US businessman who is leading an anti-corruption campaign against the Kremlin leader and other Russian officials.
An exiled Russian businessman said: “For the time being he [Putin] lives in a money-free world. If [Putin’s friend] Alina Kabayeva tells him she saw a diamond and wants a similar one, she’ll get not a similar one but exactly that one.”
Mr Putin’s alleged cash machine has become the No 1 target for the formidable team of sanctions engineers, the officials from the US Treasury and the financially savvy intelligence agencies whose task it is to find his vulnerabilities.
Piecing together what we have found out about their work, The Times can trace three phases in Putin’s complex game of intertwining business and politics to his advantage.
The Band of Brothers The jobless Mr Putin pulled strings. Within three months his network of KGB colleagues had spotted an opening for him as an adviser at City Hall. When his former university lecturer Anatoly Sobchak became mayor of St Petersburg in 1991, he put his protégé in charge of the city’s external economic relations department. As a KGB officer he was trained to spot foreign spies, vet investors and make sure that the right Russian partners were put in touch with the foreigners.
Within six years Mr Putin, who had power to grant permits and export licences, was surrounded by people who now run Russia’s oil, gas, construction and banking companies. Two of Russia’s largest state companies, Rosneft and Gazprom, are run respectively by Igor Sechin and Alexey Miller, both Mr Putin’s deputies at that time. The man regarded as one of Mr Putin’s closest friends, Gennady Timchenko, founded one of the world’s big oil exporting companies.
Business grew fast in the chaos of the 1990s as the Soviet system fell apart. It was the 1990s when “Russia’s road to corruption started”, claimed one US congressional source with knowledge of monitoring of Putin’s Russia. The St Petersburg era offered the best window into that, they said.
Richard Palmer, a former CIA station chief in Moscow, said in evidence to a US congressional committee in 1999 that senior officials were involved in “the looting of the Russian state”. Mr Palmer named Boris Yeltsin, who was then president. He also named Mr Putin, who was the prime minister.
There is no evidence that any of the individuals targeted by western sanctions, or other oligarchs, are implicated in any corruption or that they secured their fortunes as a result of corruption. However, given their connections to Mr Putin, they are of intense interest to the US.
In 1990s St Petersburg, Mr Putin was becoming a figure of substance. He became one of the founder members of an elite dacha compound, the Ozero co-operative, in a lakeside neighbourhood. Those involved developed a bond that would propel him into the Kremlin. His neighbours included Vladimir Yakunin, now the head of the state-owned Russian Railways, and Yuri Kovalchuk, major shareholder of Bank Rossiya. US officials have called the bank “a crony bank” and Mr Kovalchuk one of Mr Putin’s “cashiers”.
A report by the opposition paper Novaya Gazeta claimed that Mr Putin had given up to 23 billion roubles ($4.5 million) of public money to a construction company 20th Trest in the form of loans, with the company storing the money in foreign accounts. Andrei Zykov, a former police officer who led the investigation into 20th Trest, said by phone from St Petersburg that he believed Mr Putin used his privileged position to help the company. Mr Zykov claimed that in return the company helped Mr Putin to construct his Ozero dacha. Dmitry Peskov, the Kremlin spokesman, denied such suggestions, saying that they were part of an attack by western media.
Mr Putin denies that anything illicit happened in the 1990s. There was an investigation into claims of fraud in the St Petersburg administration launched by local politicians in 1992. It led to Mr Zykov’s investigation into 20th Trest. Both investigations were closed without going to court. “As a matter of fact, there was no investigation,” Putin said in 2000. “There was nothing there that could be criminally prosecuted.”
Not everyone agrees that Mr Putin did anything controversial in the early 1990s. “Up to 1996 Putin led a modest lifestyle,” a former associate from 1990s St Petersburg said.
When his boss Anatoly Sobchak was defeated in the 1996 mayoral election, Mr Putin was out of a job — and in need of cash. His friends helped him to make the move to Moscow, to the centre of power. It is claimed that Gennady “Gena” Timchenko assisted with the start-up capital for a high-level political career.
“Relations with Timchenko helped: Putin was given money to go to Moscow,” a former associate said. A spokesman for Mr Timchenko, asked if he had helped Mr Putin financially at this time, said: “Mr Timchenko has never participated in any of Mr Putin’s private matters.” But when Mr Putin moved, many of the Band of Brothers prepared to up sticks too. They were about to get much richer.
The Kremlin cash flow Vladimir Putin needed cash, or at least the support of the super-rich, at three critical points in his career: on his return from East Germany; when he moved to Moscow (1996); and in the first phase of his presidency (2000-2004) when it was unclear if he would survive more than one term. US investigators believe that his trusted associates began to “sponsor” him. Over time, the Band of Brothers effectively became trustees. And that is one reason why the US has put what it calls Putin’s “cronies” on the sanctions list.
The US Treasury explained its targeting of the Putin inner circle by saying that the individuals were, “acting for or on behalf of or materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of” a “senior Russian government official”. Treasury officials said that this was a reference to Mr Putin and others. Anything that weakens ties between them weakens Mr Putin, goes the thinking.
“By the time he got to Moscow . . . he had a system that was pretty much in place,” said Karen Dawisha, a US-based academic who researched Mr Putin’s circle. Her theory is that supporters set up a joint bank account for his benefit.
Boris Berzovsky, the late oligarch who claimed to have advised Boris Yeltsin to appoint Mr Putin as the next Kremlin chief, calculated that Mr Putin must have been a millionaire by 1999, albeit a modest one. To achieve and consolidate power you needed far more. Bill Browder, once Russia’s major foreign investor and now a Putin enemy, claimed that there were dozens of different Ozero-style communities, invisibly linking politics with money that was flowing in and around massive privatisation deals.
“There were different connections to different things,” he said. But only one held the promise of buying into supreme power. When Mr Putin became first Mr Yeltsin’s prime minister and then his successor as president, his rich backers saw a chance to move into the big league.
At the core
of Mr Putin’s system was his
insecurity; he trusted the inner
circle but saw in other wealthy
businessmen only a threat. Many had
influence over local governors. With
western holdings they were rich
beyond his control. They also had
political ambitions. “That’s when
they started to go after other
oligarchs to get their money,” said
Mr Browder, architect of an
anti-corruption campaign against
Moscow. He is banned from Russia and
lives in London.
When the Kremlin leader smashed the
Yukos oil giant in 2003-2004,
hitting it with $27 billion in tax
demands and arresting its boss,
Mikhail Khodorkovsky, he sent a
signal to any oligarch who risked
public disloyalty. Khodorkovsky
spent ten years in jail. Most
observers saw the sentence as
politically motivated. Just before
his arrest in 2003, Mr Khodorkovsky
challenged Mr Putin publicly about
alleged government corruption. He
highlighted the state purchase of an
oil company for what was seen as an
inflated figure.
Mr Browder believes it was at this stage that Mr Putin saw the need to consolidate his power and money. “He became president in 2000 and he understands that there are elections in 2004. So he wanted to make sure that he had a lot of money saved.”
For those who kept the faith, Mr Putin created a bonanza. Rosneft, run by Igor Sechin, his former deputy in St Petersburg, purchased Yukos’s largest subsidiary Yuganskneftegas. Oil started to shift in massive volumes through Gunvor, the trading company led by Mr Timchenko, which became an exporter of Rosneft’s oil. By 2007 Gunvor’s revenues had jumped from $5 billion to $43 billion. By 2012 they had jumped again to $93 billion.
Yukos said the purchase was against the law and sued the Russian government. Last year, the Hague arbitration court declared that the 2003 attack against Yukos was politically motivated and obliged Russia to pay $50 billion for expropriating its assets. Hand in hand with this consolidation of power and alleged personal enrichment, came a firmer grip on state propaganda. To question the money flow around the Kremlin became an unpatriotic act.
The Gold Rush From 2004 to the invasion of Crimea last year, most of Putin’s friends from St Petersburg made their way to the top of Russia’s Forbes Rich List. It was a golden decade despite some hiccoughs in the economy. Ten weeks before his murder this year, Boris Nemtsov reflected on the speed of the Putin circle’s swiftly acquired wealth. “The truth is they became billionaires and were in Forbes magazine in 2005,” he said. “In the 1990s they were very small businessmen.”
Theres no evidence that their gains were ill gotten, but they made investments that turned out to be prescient and lucrative. The Band of Brothers co-operated with cross-holdings, helping each other’s children. It is part of the Putin system that loyalty, money and power intertwine, favours gathered in and dispensed as if from a giant ledger.
At the more subtle level, it led to Igor Sechin, now head of Rosneft, hurrying to a car crash in St Petersburg in the 1990s in which Mr Putin’s wife, Lyudmila, was bady injured, to take care of his daughter Maria. Their connections run deeper than others who had grown rich fast in the privatisations of the 1990s and who felt most comfortable summering in France. By contrast, Mr Putin’s circle was more rooted in a vision of the Russian nation: strong, proud, centralised, religious. Their wives are less ostentatiously glamorous and their social life more modest.
The machine,
however, continues to crank out
support when needed. The Band of
Brothers always stands ready. When
Mr Putin decided he wanted to stage
the best Winter Olympics in history,
they were on hand to help — and make
money. Vladimir Yakunin was in
charge of major construction
projects for the Sochi Winter
Olympics.
The route connecting the arenas and
the Olympic Village with the
mountains above was worth $8.3
billion — the most expensive of the
Olympic projects. Another Putin
friend, Arkady Rotenberg, also had a
share of the same road. According to
the British Treasury, Mr Rotenberg’s
companies were awarded at least 21
contracts worth more than $7
billion.
They compete to impress their patron, and to generate money for themselves. Greed is good — if it is demonstrably good for the image of Russia and its leader. But the system, the US authorities calculate, is such that Mr Putin grows richer as they too grow rich. Is this what the US means by sponsorship? Holding money on behalf of the boss, unmarked, buried in a mesh of shell companies — and partly because of the payment of “tribute”.
For instance, a decision congeals inside the Band of Brothers: the boss should have a palace where he can hold private encounters. Sometimes the initiative comes from the powerful presidential administration; sometimes in conversation between members of the inner circle born out of gratitude for a presidential favour.
Nikolai Shamalov, a co-founder with Mr Putin of a dacha enclave in St Petersburg and a shareholder in the sanctioned Bank Rossiya, was the driving force behind a $1 billion palace built on the Black Sea for Putin, according to a whistle blower.
The claims were made in an open letter in 2010 to Dmitry Medvedev, then president, by Sergei Kolesnikov. Mr Kolesnikov was formerly a co-owner of a medical company Petromed established in the 1990s with help from Mr Putin’s city hall department. The luxury estate was nicknamed Putin’s Palace. An embarrassed Kremlin denied it was anything to do with Mr Putin.
Until the Putin system implodes it will always be next to impossible to prove that anything was built or bought “for Putin”. The Band of Brothers has moulded the narrative so that any gift can be presented as a patriotic gift to the state.
“Putin inhabits a money-free zone where it is power that buys him everything and not cash,” said a former associate of Mr Timchenko.
Oleg Kalugin, a former KGB station chief in the US, agrees. “Putin does not seem to me a greedy guy. He is the guy who is afraid to lose power.”
The four pillars of influence
City Hall: Vladimir Putin spent six years in local government in St Petersburg, five of them in charge of the powerful committee of external economic relations, responsible for signing off business ventures. His city hall deputies were Alexey Miller, now head of Gazprom, and Igor Sechin, head of Rosneft, both state companies.
Judo:
Mr Putin and two childhood friends
and judo partners, the brothers
Arkady and Boris Rotenberg, were
among founders of the Yawara-Neva
judo club in St Petersburg in 1998.
A third friend, Gennady Timchenko,
was another. All three became
billionaires.
A fourth founder, Vasily Shestakov,
co-authored a book on judo with Mr
Putin and founded a predecessor of
United Russia, the governing party.
The head of the club’s audit
committee, Viktor Zubkov, is a
former prime minister and has been
chairman of the board of Gazprom
since 2008.
Bank Rossiya: In 1991 a few entrepreneurs bought the tiny, recently founded Bank Rossiya. It was almost bankrupt. By the time it was sanctioned by the US last year it was Russia’s 17th largest bank with assets estimated at $11 billion. It has been described as a “crony bank”. Of the founders, Vladimir Yakunin is now head of Russian Railways. Andrei Fursenko is a Kremlin aide. Yuri Kovalchuk is head of the executive council of Bank Rossiya, and US officials call him “personal banker” to Mr Putin.
Ozero Dacha Community: In 1996 Mr Putin, then a rising civil servant, formed a management company with seven businessmen to handle a lakeside dacha enclave north of St Petersburg. They called it Ozero [lake]. Nearly all have built huge fortunes or stellar careers in government. They include Yuri Kovalchuk and several other early investors in Bank Rossiya.
Additional reporting by Katerina Kravtsova