LAST UPDATE | 10 Mar 2022
(Note: This is an updated version of an article first published on 5 March, now reflecting sanctions on Roman Abramovich)
THE OLIGARCHS ARE on the run, both figuratively and literally.
Literally speaking, there are reports of superyachts linked to Russian billionaires being moved to places likes the Maldives, away from the grasp of western authorities.
The risk of not doing so was highlighted last week when France confirmed it had seized ‘Amore Vero’, a $120 million yacht owned by oil supremo Igor Sechin.
Dilbar, a $600 million yacht belonging to Alisher Usmanov, is stuck in Hamburg and won’t be going anywhere soon.
The story of the superyachts is something of a sideshow to the horror of what’s happening in Ukraine, but it’s also instructive as to how Vladimir Putin’s invasion has upended everything he has shaped since he took over in the Kremlin in 1999.
For the oligarchs, Putin already shifted the balance of power in a Russia they once dominated but now their very future is under threat.
For the uninitiated, who are the oligarchs and where do they fit in the current situation?
The Russian Federation
In short, Russian oligarchs are the business tycoons who rapidly accumulated wealth during Russia’s privatisation of state assets after the breakup of the Soviet Union.
These men, and they are almost exclusively men, took advantage of these chaotic years to amass ownership stakes in huge companies producing oil, gas, coal, metals and more.
During the 1990s, these oligarchs were usually close to former Russian President Boris Yeltsin. They funded his political activities and wielded great power.
A new era
With Putin’s succession from Yeltsin, the new Russian president sought to consolidate his power by bringing many of the oligarchs to heel.
He did this in a number of ways. Firstly closing tax loopholes that allowed the billionaires to avoid tax. Putin also nationalised mass media, giving him and not the oligarchs influence and control.
He also imprisoned those who did not comply.
For example, Mikhail Khodorkovsky was once thought to be Russia’s wealthiest man with a fortune of $15 billion in 2003.
Like other Russian tycoons, Khodorkovsky made his fortune from controversial loans-for-shares auctions to privatise Soviet state assets. He built his now defunct Yukos oil company into one of Russia’s most transparent and successful firms and financed opposition parties and charities.
He was arrested at gunpoint for financial crimes in 2003 and spent the next 10 years in prison on charges his supporters said were revenge for daring to oppose Putin.
Khodorkovsky now lives abroad after his release but others suffered a different fate.
Russian oligarch Boris Berezovsky died in odd circumstances while exiled in London.
Berezovsky was found by one of his employees on the floor of the bathroom at his house in the upmarket town of Ascot in 2013.
A post-mortem found his death consistent with hanging but the coroner at the inquest recorded an open verdict. In 2008, Berezovsky’s Georgian business partner Badri Patarkatsishvili was also found dead in his south London home, aged 52.
His death was put down to a heart attack, but Patarkatsishvili’s fall-out with Putin and controversial political career in his home country raised suspicions of murder.
Putin’s people
For the oligarchs that remained, their wealth grew but the relationship with the Kremlin had changed completely. They were now operating within the confines of what Putin allowed.
Journalists who’ve reported on Russia in the past 20 years have picked apart this relationship in detail, even alleging that oligarchs and their businesses operated on Putin’s direction.
Speaking last week on BBC’s Newsnight programme, Reuters correspondent and author of Putin’s People Catherine Belton explained that the example of Khodorkovsky showed the oligarchs what would happen if they didn’t follow Putin’s will.
“Once Khodorkovsky was in jail and his oil company was taken over by the State, each and every one of the oligarchs realised the same thing could happen to them, that they depended on the good graces of the Kremlin to retain their fortunes,” she says.
They had to carry out tasks for the Kremlin and indeed, one of them even told me that if you get a call from the Kremlin saying spend 1 billion or 2 billion on this or that strategic project, you have to comply, you can’t refuse.
Roman times
The oligarchs also realised that remaining in the good graces of Putin was not sufficient to ensure their freedom and their billions.
For many, the answer came in bringing their wealth to western countries to not only invest but to create a profile they hoped might shield them from the Kremlin.
The most famous example of this if of course Roman Abramovich, who brought his cash to London and bought Premier League club Chelsea FC.
Abramovich was today sanctioned by the United Kingdom due his “close relationship” with Putin and the “material benefit” he has received from the Kremlin.
Abramovich grew up as an orphan from a Jewish family in the far north before becoming a businessman, making and selling rubber toys.
During Russia’s murky privatisation period he managed to emerge with controlling investment in the oil company Sibneft. In 2005, the 73% Abramovich-owned Sibneft was sold back to State-owned gas behemoth Gazprom in a deal worth $13 billion.
The aforementioned and deceased Berezovsky was a business partner of Abramovich’s, but unlike Berezovsky he kept a low political profile and was rewarded with the governorship of the vast, far-eastern Chukotka region.
After this, Abramovich set his sights on Chelsea and bought the club in 2003.
The move has been spectacularly successful on a footballing level, with Chelsea winning the Premier League five times, the FA Cup five times and the European Cup (Champions League) twice during the Abramovich-era.
As he now looks to sell the club, Chelsea are currently the Champions League and Club World Cup holders.
Any sale is now seemingly impossible however, at least for Abramovich, on foot of the UK government’s decision to sanction him.
The sanction freezes Abramovich’s assets, meaning that he cannot benefit from any sale, but what it means for Chelsea generally is unclear.
There are suggestions that the club may still be sold if Abramovich effectively hands the deal over to the UK government.
The move against Abramovich has come following much pressure on the UK government, but now that it’s happened it also lays bare the UK’s view on his links with Putin.
Confirming the sanctions today, a UK government document states that Abramovich is:
associated with a person who is or has been involved in destabilising Ukraine and undermining and threatening the territorial integrity, sovereignty and independence of Ukraine, namely Vladimir Putin, with whom Abramovich has had a close relationship for decades.
“This association has included obtaining a financial benefit or other material benefit from Putin and the Government of Russia. This includes tax breaks received by companies linked to Abramovic, buying and selling shares from and to the state at favourable rates, and the contracts received in the run up to the FIFA 2018 World Cup.”
Until now, the ownership of Chelsea provided Abramovich with a foothold in British society, a legion of defenders and a complex business interest in London that insulated him from Moscow.
That protection first began to look shaky in 2018, following the Novichok poisoning of Sergei Skripal and his daughter Yulia in Salisbury in the UK.
The near-fatal poisoning of the former Russian intelligence agent was blamed on the Kremlin and the UK government was forced to examine the swathes of Russian money that had been flooding into London.
An investor visa for high-wealth individuals that Abramovich had been using to do businesses in the UK was not renewed and his future in the UK became unclear.
In the four years since, Abramovich’s visits to the UK became increasingly rare and he took out the Israeli citizenship he was entitled to on account of being Jewish.
War
The pressure Abramovich faced in 2018 is nothing like what is currently happening to oligarchs around the world following Russia’s invasion of Ukraine.
A total of 862 Russian individuals have now been targeted by sanctions from the EU. These include sanctions on politicians as well as businesspeople.
In a joint statement last weekend, G7 nations announced they would set up a “transatlantic task force” to “identify and freeze” assets belonging to those facing sanctions.
Even Switzerland, a neutral non-EU nation that has for years been the financial hub for the mega rich, has indicated that it would follow the EU sanctions.
Roman Abramovich's Jet P4-BDL Took off from Jebel Ali, Dubai Emirate, AE. pic.twitter.com/Z0cFdhRu9i
— Russian Oligarch Jets (@RUOligarchJets) March 4, 2022
Others who have been sanctioned by the UK today include:
Previously others already sanctioned include Russian billionaire Alisher Usmanov, who has had ties to Arsenal and Everton football clubs.
Mikhail Fridman, who was born in Ukraine but is one of Russia’s richest men, has been forced out of the $22.3 billion London/Luxembourg investment firm LetterOne. His business partner Petr Aven has also left.
In short, the net is closing in everywhere.
“They’re terrified because obviously everything that they’ve built over the last 30 years is now melting down before their eyes,” Belton told Newsnight.
They’ve become slaves to the Kremlin, they have to follow Putin’s wishes but that’s always been a kind of a mutual assured destruction pact which has been now exploded.
“They always kind of permitted him to lead to some degree because he was the guarantor of stability, they benefited from his rule, just as much as Putin benefitted from their cash, but that pact has now been exploded completely.”
- First publish on 5 March
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