Pando

Oligarchy in the USA

A handy guide to the Russian billionaires snapping up chunks of Gawker, Uber and other influential American assets.

By Mark Ames , written on March 11, 2016

From The Disruption Desk

Russian oligarchs have been quietly snapping up some big American assets over the past few months.

Three Russian oligarchs in particular—longtime partners, and the only three oligarchs who thrived under both Yeltsin and Putin.

Mikhail Fridman invested $200 million in Uber; Viktor Vekselberg just bought a piece of Gawker Media along with veto rights over hiring and firing of Gawker’s senior editorial staff; and Lev Blavatnik, whose Access Industries invested well over a million dollars into the leader of the United States Senate, Mitch McConnell—effectively giving a Russian oligarch influence over the next Supreme Court Justice pick, or lack thereof. Access Industries also threw money at Lindsay Graham and Scott Walker, and even Little Marco Rubio. On the other side of the aisle, Hillary Clinton’s husband serves on the advisory board of Blavatnik’s eponymous Blavatnik School of Government.

Most people may know Vekselberg as the oligarch who dropped $100 million to buy nine Faberge eggs, which he returned to Russia, an offering to the man in the Kremlin. The Gawker investor is also the proud owner of fascist dictator Benito Mussolini’s estate, the Villa Feltrinelli.

Blavatnik [Mitch McConnell, Bill Clinton] is best known as the owner of Warner Music and as the richest man in Britain.

And Mikhail Fridman [Uber]—he’s long been the most powerful (and feared) of them all.

All three Russian billionaires made their nut in the bloody, lawless Russian privatizations of the 1990s. Mikhail Fridman’s powerful and politically-connected Alfa Group went from ticket scalping to window washing in the 80s, to controlling Russia’s particularly brutal cement industry in the early 1990s, and then into oil and telecoms. When Yeltsin was forced to sit down with the “Seven Bankers” who controlled his presidency in 1997, Fridman was among those seven seated at the Kremlin table; and under Putin, Fridman’s Alfa Group alone enjoyed a kind of immunity from Putin’s wrath that has puzzled many.  

As Fridman was rolling up Russia’s cement industry in the 1990s, Viktor Vekselberg [Gawker Media] and Lev Blavatnik [Mitch McConnell, Bill Clinton] rolled up Russia’s aluminum industry, notorious as the most violent and corpse-riddled of all the newly-privatized industries. Meanwhile, Fridman’s well-connected Alfa-Bank became one of the Russian Finance Ministry’s private treasury arms, responsible for moving state revenues around the country at a time when Russian workers and pensioners went months and sometimes years without being paid what they were owed.

The three emerging oligarchs partnered up in 1997 to buy state oil giant TNK, less than a year after TNK’s stubborn president was shot in his apartment stairwell. The three oligarchs pooled their bids behind their respective companies—Alfa (Fridman), Access Industries (Blavatnik) and Renova (Vekselberg)—which press nicknamed “AAR”.

Like all the Yeltsin-era privatizations, the TNK oil giant auction was rigged to ensure AAR won at an AAR-friendly price.

But it gets worse, and it involves an obscure US agency that has been in the news again lately—the US Export-Import Bank. In late 1999, the Ex-Im Bank came under heavy fire after it agreed to loan hundreds of millions of dollars to TNK—loans which would finance contract work by US oil servicers, including Dick Cheney’s Halliburton. Suddenly TNK and its owners were big news in Washington, as intelligence dossiers and burned investors tried to block the loan. The Center for Public Integrity got ahold of leaked intelligence reports, describing TNK as,

a Russian oil company whose roots are imbedded in a legacy of KGB and Communist Party corruption, as well as drug trafficking and organized crime funds, according to Russian and U.S. sources and documents.

The intelligence report contained 2-1/2 pages labeled “criminal situation.” It was originally commissioned by BP-Amoco after it accused TNK of stealing one of its investments in the Russian oil and gas industry. The report was compiled by former CIA and FSB spies; the CIA confirmed the report as “tracking” with its own dossiers, was filed away in its own vaults as “secret” and then passed along by the CIA to the Ex-Im Bank for review, according to the Center for Public Integrity and other media.

That report, plus others based on Russian investigations in the mid-late 1990s and US intelligence reports, claimed that Alfa Bank (co-owned by Mikhail Fridman, the investor in Uber) “had been deeply involved in the early 1990s in laundering of Russian and Colombian drug money and in trafficking drugs from the Far East to Europe."

A former KGB major who worked on one of these reports with US intelligence described Alfa Bank as a creation of the Communist Party and KGB in the late Soviet era, staffed with “rogue” members of anti-organized crime intelligence units. Quoting again from the CPI report,

“They (the rogue agents on the banks payroll) quickly determined that dealing in drugs would bring the highest profits with literally no risk in Russia,” according to the former KGB officer.

He claimed that a “large channel of heroin transit was established from Burma through Laos, Vietnam, to the Far East [Siberia].” From there the drugs were camouflaged as flour and sugar shipments and forwarded on to Germany. The drug operation was controlled by a Chechen mob family, he said.

The FSB report, too, claimed that the Alfa Groups top executives, oligarchs Mikhail Fridman and Pyotr Aven, “allegedly participated in the transit of drugs from Southeast Asia through Russia and into Europe.”

Other reports cited in the investigation linked Alfa to the Cali Cartel and to Russia’s notorious Solnstevo gang.

(Alfa later sued the Center for Public Integrity for defamation in a US court, but the case was tossed out. Alfa denied the allegations.)

The oil business being what it is—in BP’s case, the oil business being “bookable oil reserves,” the basis for stock valuations, debt issuance, and executive compensation—BP came crawling back to TNK a few years after the big mafia scandal, and paid the three Russian oligarchs $6.75 billion for a 50% stake in TNK. A hefty markup of at least 10-20X from what the oligarchs paid for that stake just a few years earlier.

Shockingly, the BP-TNK partnership didn’t go so smoothly (although the BP-TNK partnership made up a quarter of BP’s reported reserves). As the disputes between BP and the Russian oligarchs heated up, suddenly BP found its Russian offices raided by the FSB and police, two top BP employees arrested and locked up, and top BP executives including current CEO Robert Dudley were kicked out of Russia.

BP caved again, and in 2013 the entire venture was sold for $55 billion to Russian oil giant Rosneft, headed by an old close FSB ally of Vladimir Putin. Rosneft grew fat under Putin by cannibalizing oil giant Yukos after Putin arrested its billionaire owners in 2003.

Other highlights:

  •      In 2006, Fridman’s Alfa Group [Uber] was caught using former British and American spies to infiltrate KPMG, one of the Big Four major accounting firms, in order to obtain secrets from audits on Alfa’s rival for control of a Russian mobile phone telecoms giants. The spying scandal led to Congressional hearings led by Henry Waxman;
  •      In the 1990s, Blavatnik [Mitch McConnell, Bill Clinton] was caught up in the Justice Department fraud suit against a group of American advisors to Russia, who used their insider positions working for USAID to set up Russia’s capital markets to enrich themselves on the side. Blavatnik was called to testify in the trial, and had taken money from the defendants to invest in privatized Russian enterprises at the same time that the defendants were writing the rules for the newly-formed Russian capital markets, on contracts paid for by the US government. [Read the New Yorker story for more details.]
  •      Vekselberg [Gawker Media] came under criminal fraud investigation a couple of years ago in Russia at the $15 billion “Russian Silicon Valley” Skolkovo Center for Innovation, which Vekselberg heads. Vekselberg was accused of enriching himself by steering state funds for the project into his own bank. He was eventually cleared of all charges.

Thus it was that money extracted from the impoverished Russian masses and workers eventually trickled down into the mouths of Travis Kalanick, Nick Denton, and Mitch McConnell...