The Oligarchs (97 page)
Authors: David Hoffman
11
Dart was also angry at Khodorkovsky's ridiculously low offer to buy out his shares. According to a worksheet from AB Image, a public relations agency representing Dart Management, Khodorkovsky offered to pay fifty-four cents a share. That valued Yuganskneftegaz at $22 million. However, the subsidiary's annual production of 25 million tons of oil was worth $2 billion in global export prices at the time. Khodorkovsky offered thirty-two cents per share for Samaraneftegaz, or a valuation of the subsidiary at $11 million, when its annual production was worth $840 million on global markets. His offer was eleven cents per share for Tomskneft, for a valuation of $3.1 million, compared to annual production worth $640 million.
Dart was also angry at Khodorkovsky's ridiculously low offer to buy out his shares. According to a worksheet from AB Image, a public relations agency representing Dart Management, Khodorkovsky offered to pay fifty-four cents a share. That valued Yuganskneftegaz at $22 million. However, the subsidiary's annual production of 25 million tons of oil was worth $2 billion in global export prices at the time. Khodorkovsky offered thirty-two cents per share for Samaraneftegaz, or a valuation of the subsidiary at $11 million, when its annual production was worth $840 million on global markets. His offer was eleven cents per share for Tomskneft, for a valuation of $3.1 million, compared to annual production worth $640 million.
12
The Russian Joint Stock Company law had a provision on so-called interested party transactions. The idea was to avoid a conflict of interest in which the people who control decisions to sell assets or shares, the “interested party,” could sell the assets to themselves or companies they controlled. If Khodorkovsky controlled the offshore companies, then voting to sell the subsidiaries to them could break the law. However, enforcement was weak.
The Russian Joint Stock Company law had a provision on so-called interested party transactions. The idea was to avoid a conflict of interest in which the people who control decisions to sell assets or shares, the “interested party,” could sell the assets to themselves or companies they controlled. If Khodorkovsky controlled the offshore companies, then voting to sell the subsidiaries to them could break the law. However, enforcement was weak.
13
It is impossible to estimate what price Dart paid initially. Shares in Yuganskneftegaz, for example, traded from $5 a share at the outset in midâ1994 to as much as $40 a share when the market reached its peak later in the year, and later fell again to below $5 a share. Dart may have been one of the two or three largest private investors in Russia in the mid 1990s, although he was very secretive about his holdings.
It is impossible to estimate what price Dart paid initially. Shares in Yuganskneftegaz, for example, traded from $5 a share at the outset in midâ1994 to as much as $40 a share when the market reached its peak later in the year, and later fell again to below $5 a share. Dart may have been one of the two or three largest private investors in Russia in the mid 1990s, although he was very secretive about his holdings.
14
Telephone statement by Daiwa Europe Ltd. to the author, undated.
Telephone statement by Daiwa Europe Ltd. to the author, undated.
16
One reason Potanin and Jordan were forced to back down was a public campaign against the dilution waged by William Browder, the successful fund manager, who had a $100 million stake in Sidanco and was furious at their plans to reduce his stake.
One reason Potanin and Jordan were forced to back down was a public campaign against the dilution waged by William Browder, the successful fund manager, who had a $100 million stake in Sidanco and was furious at their plans to reduce his stake.
18
Mark D'Anastasio, interview by author, May 29, 2001. Burson-Marsteller's work for Khodorkovsky included the use of press interviews to improve his image during a visit to the United States in the spring of 1999, just as Vasiliev was conducting his investigation. Khodorkovsky spoke for eight hours to a
New York Times
reporter on this trip. But the result was not what Khodorkovsky had intended. The article was not published until September, and it came just as new allegations about Russian money laundering were being raised. Timothy L. O'Brien, “Follow the Money, If You Can,”
New York Times
, September 5, 1999.
Mark D'Anastasio, interview by author, May 29, 2001. Burson-Marsteller's work for Khodorkovsky included the use of press interviews to improve his image during a visit to the United States in the spring of 1999, just as Vasiliev was conducting his investigation. Khodorkovsky spoke for eight hours to a
New York Times
reporter on this trip. But the result was not what Khodorkovsky had intended. The article was not published until September, and it came just as new allegations about Russian money laundering were being raised. Timothy L. O'Brien, “Follow the Money, If You Can,”
New York Times
, September 5, 1999.
19
Alexei Tsyganok, vice president, Russian Trading System, letter to the author, November 16, 1999; National Association of Participants in the Stock Market, letter to the council of directors of the Russian Trading System, June 19, 1999.
Alexei Tsyganok, vice president, Russian Trading System, letter to the author, November 16, 1999; National Association of Participants in the Stock Market, letter to the council of directors of the Russian Trading System, June 19, 1999.
20
Yukos, press release, July 21, 1999: “The position of Dmitry Vasiliev in the conflict of Yukos with the Dart group has become tendentious.”
Yukos, press release, July 21, 1999: “The position of Dmitry Vasiliev in the conflict of Yukos with the Dart group has become tendentious.”
21
The criminal case against Vasiliev was quietly dropped a month after his resignation.
The criminal case against Vasiliev was quietly dropped a month after his resignation.
22
“Yukos, Rising to the First Tier,” Credit Suisse First Boston (Europe) Ltd., March 8, 2001, p. 27.
“Yukos, Rising to the First Tier,” Credit Suisse First Boston (Europe) Ltd., March 8, 2001, p. 27.
23
Khodorkovsky later disclosed that two of the three lenders in the 1998 $500 million loan, Merrill Lynch and Goldman Sachs, had panicked after the crash and sold their paper for as little as eighteen cents on the dollar. They sold because they thought Yukos might default. Khodorkovsky said the two lost about $150 million “needlessly” (Khodorkovsky to reporters and editors at the
Washington Post,
May 18, 2000). Yukos later canceled all the planned share emissions and transfers to offshore zonesâthe threat had sufficed.
Khodorkovsky later disclosed that two of the three lenders in the 1998 $500 million loan, Merrill Lynch and Goldman Sachs, had panicked after the crash and sold their paper for as little as eighteen cents on the dollar. They sold because they thought Yukos might default. Khodorkovsky said the two lost about $150 million “needlessly” (Khodorkovsky to reporters and editors at the
Washington Post,
May 18, 2000). Yukos later canceled all the planned share emissions and transfers to offshore zonesâthe threat had sufficed.
24
Berezovsky, interview by author, February 28, 2001.
Berezovsky, interview by author, February 28, 2001.
25
Luzhkov said Skuratov had been subject to “blackmail” with the video, which he said was made a year earlier. The upper chamber of parliament, the Federation Council, was responsible for overseeing the prosecutor. When the matter arose, Luzhkov, a leading member of the chamber, joined his fellow regional leaders in voting to keep Skuratov on the job. Yeltsin was furious.
Luzhkov said Skuratov had been subject to “blackmail” with the video, which he said was made a year earlier. The upper chamber of parliament, the Federation Council, was responsible for overseeing the prosecutor. When the matter arose, Luzhkov, a leading member of the chamber, joined his fellow regional leaders in voting to keep Skuratov on the job. Yeltsin was furious.
27
As a precaution, Luzhkov requested, and won, approval from the city council to advance the date of the next mayoral election from June 2000 to December 1999. Luzhkov won reelection by 70 percent of the vote.
As a precaution, Luzhkov requested, and won, approval from the city council to advance the date of the next mayoral election from June 2000 to December 1999. Luzhkov won reelection by 70 percent of the vote.
28
Some of the Berezovsky-Dorenko calls were published in the newspaper
Novaya Gazeta
on December 16, 1999. The newspaper often published materials from shady special services. Dorenko told me that the transcript was accurate but may have included several calls between him and Berezovsky as they planned the attack. Dorenko called the tycoon “Bor” instead of Boris, and Berezovsky called Dorenko “dear.” Berezovsky confirmed the accuracy of the transcripts and also said they may have been a compilation.
Some of the Berezovsky-Dorenko calls were published in the newspaper
Novaya Gazeta
on December 16, 1999. The newspaper often published materials from shady special services. Dorenko told me that the transcript was accurate but may have included several calls between him and Berezovsky as they planned the attack. Dorenko called the tycoon “Bor” instead of Boris, and Berezovsky called Dorenko “dear.” Berezovsky confirmed the accuracy of the transcripts and also said they may have been a compilation.
29
The donor was Behjget Pacolli, the Swiss businessman who was reportedly at the center of the Kremlin reconstruction scandal. Pacolli, whose firms restored the Kremlin halls, complained rather piously that he spent $870,000 to rebuild the hospital at Luzhkov's request but never received so much as a thank-you note.
The donor was Behjget Pacolli, the Swiss businessman who was reportedly at the center of the Kremlin reconstruction scandal. Pacolli, whose firms restored the Kremlin halls, complained rather piously that he spent $870,000 to rebuild the hospital at Luzhkov's request but never received so much as a thank-you note.
30
The
New York Times
reported in mid-August 1999 that U.S. investigators were probing a “money laundering” scheme in which billions of dollars was spirited out of Russia. In February 2000, a former bank vice president, Lucy Edwards, and her husband, Peter Berlin, pleaded guilty to running the scheme through a company, Benex International, that channeled money from Russia through the Bank of New York and on to other destinations. However, they were just couriers, and the people who ordered the money sent out of Russia were not identified. Most of it appeared to be capital flight: money avoiding taxes, duties, and risks inside Russia.
The
New York Times
reported in mid-August 1999 that U.S. investigators were probing a “money laundering” scheme in which billions of dollars was spirited out of Russia. In February 2000, a former bank vice president, Lucy Edwards, and her husband, Peter Berlin, pleaded guilty to running the scheme through a company, Benex International, that channeled money from Russia through the Bank of New York and on to other destinations. However, they were just couriers, and the people who ordered the money sent out of Russia were not identified. Most of it appeared to be capital flight: money avoiding taxes, duties, and risks inside Russia.
32
Luzhkov interview, broadcast on TV6, a Moscow-based channel, October 31, 1999.
Luzhkov interview, broadcast on TV6, a Moscow-based channel, October 31, 1999.
33
Yelena Baturina, interview by author, August 23, 1999.
Yelena Baturina, interview by author, August 23, 1999.
34
Berezovsky, meeting with correspondents, November 26, 1999.
Berezovsky, meeting with correspondents, November 26, 1999.
35
Renaud, letter to the editor.
Renaud, letter to the editor.
36
Robyn Dixon, “Pushing the Boundaries of a Free Press; Russia: Media Tycoon's Struggle with the Kremlin Is Seen as a Litmus Test of What President Putin Will Allow,”
Los Angeles Times
, June 1, 2000. Gusinsky repeated his version of the meeting at a briefing for correspondents, including the author, on June 2, 2000.
Robyn Dixon, “Pushing the Boundaries of a Free Press; Russia: Media Tycoon's Struggle with the Kremlin Is Seen as a Litmus Test of What President Putin Will Allow,”
Los Angeles Times
, June 1, 2000. Gusinsky repeated his version of the meeting at a briefing for correspondents, including the author, on June 2, 2000.
37
Andrei Vandenko, “The Kremlin Will Be Paying Back with Interest,”
Komsomolskaya Pravda
, August 3, 1999, pp. 3â5. Interview with Voloshin.
Andrei Vandenko, “The Kremlin Will Be Paying Back with Interest,”
Komsomolskaya Pravda
, August 3, 1999, pp. 3â5. Interview with Voloshin.
38
Susan B. Glasser and Peter Baker, “Kremlin Wages War of Nerves: TV Network Struggles with Outside Pressures and Internal Tension,”
Washington Post
, January 29, 2001, p. A13.
Susan B. Glasser and Peter Baker, “Kremlin Wages War of Nerves: TV Network Struggles with Outside Pressures and Internal Tension,”
Washington Post
, January 29, 2001, p. A13.
39
Berezovsky's role in the onset of the Chechen hostilities has been the subject of much speculation. Berezovsky had good connections among some Chechen groups, but I think he was more of an intermediary than an instigator. The origins of the second war lie primarily in disorder inside Chechnya and weariness with the conflict in Moscow. The first factor, internal disorder, was caused by a split between Aslan Maskhadov, the Chechen president, and Basayev. Maskhadov, who had been Moscow's interlocutor, lost control of the disparate Chechen fighting groups. The second factor was Kremlin indecision. Anton Surikov, a former Russian military intelligence officer who later became a staff
director of a Russian parliamentary committee, told me Russian officials had indications that Basayev was planning something on the Dagestani border that summer. “It was not being hidden,” he said. “There was a certain panic here. There was a feeling of complete helplessness.” Likewise, Voloshin said in August, “The dates [of the Basayev assault] were definitely known several days before.” But, he added, the “area is hilly and difficult to guard. There are hundreds of different paths, plenty of canyons, mountain paths. There is no border, actually.... That is why it is not possible just to line up soldiers to guard the border.” Berezovsky told me that he began warning the Kremlin in May and June 1999 that Chechen commanders were telling him that things were getting out of control and “there may be trouble in Dagestan.” Berezovsky added, “I passed it all on to Stepashin, who was the prime minister then. I had a meeting with him and told him. He said, âBoris, don't worry. We know everything, all is under control.'” Separately, Stepashin told me the planning for a crackdown on Chechnya was under way earlier in the year after a Russian Interior Ministry general was kidnapped. He said the Russian authorities had intelligence in June of a possible attack, and “we were planning to implement” a cordon around Chechnya “irrespective of Basayev's assault.” Stepashin said he chaired a meeting of the Kremlin Security Council in July, and “we all came to the conclusion that there was a huge hole on our border that won't be closed if we don't [advance] to the Terek [River inside Chechnya]. It was a purely military decision.” Stepashin said that after his dismissal, Putin picked up the plans he had put in place and continued with them. Basayev's reasons for staging the dramatic cross-border incursion, and his reading of how Russia would respond, are not clear. He declared at the time that he hoped to trigger an uprising in Dagestan, rallying support for the creation of an Islamic state. But it was a futile effort. The raid triggered alarms in Dagestan, which is a mosaic of ethnic groups, and many villages began arming themselves to fight the Chechens. Eventually Russian troops beat them back to the border, and Putin launched the larger offensive. Another unanswered question is who was responsible for the apartment house bombings that triggered the war. Putin and his government blamed Chechens. Inside Russia, some have speculated that the blasts were carried out by shadowy groups possibly linked to security services as a way to propel Putin to power. When Berezovsky was asked about this on September 19, 2000, during a meeting with
Washington Post
editors and reporters, he said that at first he could not believe the security services would have done it; he was sure it was the Chechens. But, he added, “I have more and more doubts that it was done by Chechens.”
Berezovsky's role in the onset of the Chechen hostilities has been the subject of much speculation. Berezovsky had good connections among some Chechen groups, but I think he was more of an intermediary than an instigator. The origins of the second war lie primarily in disorder inside Chechnya and weariness with the conflict in Moscow. The first factor, internal disorder, was caused by a split between Aslan Maskhadov, the Chechen president, and Basayev. Maskhadov, who had been Moscow's interlocutor, lost control of the disparate Chechen fighting groups. The second factor was Kremlin indecision. Anton Surikov, a former Russian military intelligence officer who later became a staff
director of a Russian parliamentary committee, told me Russian officials had indications that Basayev was planning something on the Dagestani border that summer. “It was not being hidden,” he said. “There was a certain panic here. There was a feeling of complete helplessness.” Likewise, Voloshin said in August, “The dates [of the Basayev assault] were definitely known several days before.” But, he added, the “area is hilly and difficult to guard. There are hundreds of different paths, plenty of canyons, mountain paths. There is no border, actually.... That is why it is not possible just to line up soldiers to guard the border.” Berezovsky told me that he began warning the Kremlin in May and June 1999 that Chechen commanders were telling him that things were getting out of control and “there may be trouble in Dagestan.” Berezovsky added, “I passed it all on to Stepashin, who was the prime minister then. I had a meeting with him and told him. He said, âBoris, don't worry. We know everything, all is under control.'” Separately, Stepashin told me the planning for a crackdown on Chechnya was under way earlier in the year after a Russian Interior Ministry general was kidnapped. He said the Russian authorities had intelligence in June of a possible attack, and “we were planning to implement” a cordon around Chechnya “irrespective of Basayev's assault.” Stepashin said he chaired a meeting of the Kremlin Security Council in July, and “we all came to the conclusion that there was a huge hole on our border that won't be closed if we don't [advance] to the Terek [River inside Chechnya]. It was a purely military decision.” Stepashin said that after his dismissal, Putin picked up the plans he had put in place and continued with them. Basayev's reasons for staging the dramatic cross-border incursion, and his reading of how Russia would respond, are not clear. He declared at the time that he hoped to trigger an uprising in Dagestan, rallying support for the creation of an Islamic state. But it was a futile effort. The raid triggered alarms in Dagestan, which is a mosaic of ethnic groups, and many villages began arming themselves to fight the Chechens. Eventually Russian troops beat them back to the border, and Putin launched the larger offensive. Another unanswered question is who was responsible for the apartment house bombings that triggered the war. Putin and his government blamed Chechens. Inside Russia, some have speculated that the blasts were carried out by shadowy groups possibly linked to security services as a way to propel Putin to power. When Berezovsky was asked about this on September 19, 2000, during a meeting with
Washington Post
editors and reporters, he said that at first he could not believe the security services would have done it; he was sure it was the Chechens. But, he added, “I have more and more doubts that it was done by Chechens.”
40
“Oleg Dobrodeyev: The Army: These Are Our Brothers and Sons,”
Krasnaya Zvezda
, September 29, 1999. Dobrodeyev left NTV in January 2000 and was appointed head of the government-owned channel, RTR.
“Oleg Dobrodeyev: The Army: These Are Our Brothers and Sons,”
Krasnaya Zvezda
, September 29, 1999. Dobrodeyev left NTV in January 2000 and was appointed head of the government-owned channel, RTR.
41
Berezovsky took credit for the creation of Unity in the May interview and again in a meeting with
Washington Post
reporters and editors, September 19, 2000.
Berezovsky took credit for the creation of Unity in the May interview and again in a meeting with
Washington Post
reporters and editors, September 19, 2000.
42
As a member of parliament, Berezovsky would also enjoy automatic immunity from prosecution, unless revoked by a majority of the chamber. However, he denied running for this reason.
As a member of parliament, Berezovsky would also enjoy automatic immunity from prosecution, unless revoked by a majority of the chamber. However, he denied running for this reason.
43
Radio Mayak, March 18, 2000.
Radio Mayak, March 18, 2000.
44
Gusinsky, remarks to reporters at Media-Most headquarters building, June 2, 2000.
Gusinsky, remarks to reporters at Media-Most headquarters building, June 2, 2000.
46
Putin and his representatives repeatedly used this $1.3 billion figure to suggest that Gusinsky owed all the money at once. In fact, the debts were spread out over the coming years, according to a schedule prepared by Gusinsky in July 2000. The $211 million CSFB loan guaranteed by Gazprom came due in March 2000. Then NTV had a $40 million loan from Gazprom bank due in November. A $262 million loan from CSFB to Media-Most was due in July 2001. A $223 million loan from the city of Moscow to Media-Most was due in February 2003, and a $40 million loan to Media-Most from Vneshtorg Bank in May 2003. The Gusinsky companies also had $222 million in loans from the state savings bank, Sberbank, which was collateralized by Russian government dollar-denominated bonds which, on maturity in 2003, will be $72.3 million in excess of the loans. By 2009 Gusinsky must pay off the $123.7 million balance on the U.S. ExIm Bank loan for the satellite. The Russian Finance Ministry also guaranteed a $32.5 million loan for purchase of a Russian satellite. Gusinsky and his top officials often said that although the company had large debts, it was growing rapidly and NTV was profitable before the 1998 crash.
Putin and his representatives repeatedly used this $1.3 billion figure to suggest that Gusinsky owed all the money at once. In fact, the debts were spread out over the coming years, according to a schedule prepared by Gusinsky in July 2000. The $211 million CSFB loan guaranteed by Gazprom came due in March 2000. Then NTV had a $40 million loan from Gazprom bank due in November. A $262 million loan from CSFB to Media-Most was due in July 2001. A $223 million loan from the city of Moscow to Media-Most was due in February 2003, and a $40 million loan to Media-Most from Vneshtorg Bank in May 2003. The Gusinsky companies also had $222 million in loans from the state savings bank, Sberbank, which was collateralized by Russian government dollar-denominated bonds which, on maturity in 2003, will be $72.3 million in excess of the loans. By 2009 Gusinsky must pay off the $123.7 million balance on the U.S. ExIm Bank loan for the satellite. The Russian Finance Ministry also guaranteed a $32.5 million loan for purchase of a Russian satellite. Gusinsky and his top officials often said that although the company had large debts, it was growing rapidly and NTV was profitable before the 1998 crash.
47
Dorenko, interview by author, February 16, 2001.
Dorenko, interview by author, February 16, 2001.
49
I once attended a “background” briefing by Lesin for a group of journalists. Lesin told journalists he was only trying to serve as an intermediary between the Kremlin and Gusinsky. But numerous other sources said Lesin played a key role in bringing pressure to bear on Gusinsky.
I once attended a “background” briefing by Lesin for a group of journalists. Lesin told journalists he was only trying to serve as an intermediary between the Kremlin and Gusinsky. But numerous other sources said Lesin played a key role in bringing pressure to bear on Gusinsky.
50
This part, protocol 6, of the agreement was controversial. It said that the case against Gusinsky would be dropped and that Gusinsky and members of his companies could stay in Russia or leave as they pleased, as long as they did not damage the Russian state. The document is initialed by Lesin and Kokh. Lesin clearly did not have the power to drop the case against Gusinsky. Kokh later claimed the document was Gusinsky's idea.
This part, protocol 6, of the agreement was controversial. It said that the case against Gusinsky would be dropped and that Gusinsky and members of his companies could stay in Russia or leave as they pleased, as long as they did not damage the Russian state. The document is initialed by Lesin and Kokh. Lesin clearly did not have the power to drop the case against Gusinsky. Kokh later claimed the document was Gusinsky's idea.
51
Berezovsky's longtime confidant and deputy, Badri Patarkatsishvili, added details about the Kremlin's intentions in an interview published July 4, 2001, in
Kommersant Daily
, Berezovsky's newspaper. He said that another Berezovsky aide, Nikolai Glushkov, had been arrested to pressure Berezovsky. In order to get Glushkov out of jail, Patarkatsishvili said, the Kremlin insisted that Berezovsky “sell the media empire and . . . end his political activity.” He said the conditions were set by Voloshin. After Berezovsky gave up his shares in ORT, the Kremlin refused to have Glushkov released from jail. Voloshin “deceived” them, he charged.
Berezovsky's longtime confidant and deputy, Badri Patarkatsishvili, added details about the Kremlin's intentions in an interview published July 4, 2001, in
Kommersant Daily
, Berezovsky's newspaper. He said that another Berezovsky aide, Nikolai Glushkov, had been arrested to pressure Berezovsky. In order to get Glushkov out of jail, Patarkatsishvili said, the Kremlin insisted that Berezovsky “sell the media empire and . . . end his political activity.” He said the conditions were set by Voloshin. After Berezovsky gave up his shares in ORT, the Kremlin refused to have Glushkov released from jail. Voloshin “deceived” them, he charged.
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