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Ukraine war places Russia’s oligarchs in the Kremlin’s sights

Multimillionaires who have voiced opposition to the invasion face smear campaigns by pro-Putin media and the expropriation of their assets

Vladimir Putin Kremlin
Vladimir Putin meets with representatives of big business circles in the Kremlin, Moscow, on February 24, the day the invasion of Ukraine began.
Javier G. Cuesta

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The collapse of the Soviet Union in the 1990s enriched the New Russians, the big winners in the distribution of the country’s immense wealth during the process of the privatization of national enterprises and resources. The war in Ukraine has now paved the way for a further division of the pie among those most loyal to the Kremlin. In the inner circle of Russian President Vladimir Putin, a surreptitious struggle is being waged for control of the business dealings of some of the country’s largest fortunes, in the possession of those who have voiced their concerns about the ongoing military offensive. After two decades of coexistence with Putin’s system, the chessboard has been radically changed for Russia’s magnates, who are facing a pincer movement of smear campaigns by pro-Kremlin media and the expropriation of their assets.

“The constant remarks about the nationalization of the companies and the continuous pressure on the owners have placed them between the anvil and the hammer,” says a source close to this circle of businessmen. There are several such cases, if which Oleg Tinkof is perhaps the most prominent. The 54-year-old entrepreneur was forced to sell his stake in Tinkoff Bank for a knock-down price after publicly criticizing the war in Ukraine. Tinkoff lives outside of Russia and is a politically independent figure, but a cozy relationship with the Kremlin hasn’t allowed other magnates to fare any better.

Oleg Deripaska, the founder of the second-largest aluminum company in the world, RUSAL, described Putin’s invasion as a “colossal error” last summer, and now the pro-Kremlin press is clamoring for his businesses to be nationalized. The first warning arrived in September, when Russian authorities started proceedings to expropriate $1 billion in assets.

On the day that Putin launched his “special military operation” in Ukraine, the Russian president convened a meeting of 37 heads of state and private companies to inform them that the invasion of Ukraine would take its toll. Among the magnates assembled for a photo opportunity was the deputy chief executive of Yandex – Russia’s answer to Google. Tigran Khudaverdyan was forced to step down in the wake of EU sanctions and Yandex has now fallen under the control of the Kremlin after being carved up.

Ultra-nationalists against ‘liberals’

Until now, the Russian president had been the foundations stone that kept the various factions close to the seat of power cohesive, including the ultra-nationalists and those pejoratively described as “liberals” – businessmen more inclined to make money with the West and avoid internal confrontations – but the war has shaken this house of cards. “Given the rise of the ultra-nationalists, it is possible that this is just the beginning,” says the same source, who points out that “Western sanctions have pushed Russian companies into the hands of those who have long yearned to devour them.”

Sanctions have also affected the multimillionaire Mikhail Fridman, the former owner of the Dia supermarket chain through international investment firm LetterOne, who published a letter in March stating “this crisis is going to cost lives.”

“I can only join those with a fervent wish for this bloodbath to stop,” said the co-founder of Alfa Bank, who attempted to sidestep sanctions by transferring his LetterOne stake to another low-profile, unrestricted oligarch, Andrei Kosogov, a co-founder of the company. Fridman, who was born in Lviv and recently offered $1 billion to Ukraine, was arrested on December 1 at his London mansion over several alleged crimes, including money laundering, according to Russia’s TASS news agency.

Trial by media

Deripaska made his fortune in the 1990s at the age of just 25 by exporting metals. In 2018, he was forced to relinquish control of RUSAL after being sanctioned by the Trump administration along with other Russian businessmen “for having acted directly or indirectly on behalf of a senior Russian official” and “operating in the Russian energy sector,” which in the eyes of Washington, then reaffirmed in its commitment to trade protectionism, would have implied “a key role in facilitating the Kremlin’s malign activities around the world.” In addition, the US Treasury Department accused Deripaska of having extorted money from rivals in the past. Deripaska sued the US State Department on the grounds that his right to a fair trial had been violated, and has denied these claims on numerous occasions by emphasizing they have never been corroborated. Now, Russian justice has taken an interest in him following his statements over the summer.

Last week, the courts rejected Deripaska’s appeal in one of the proceedings against him, opened by the Russian Prosecutor’s Office over the so-called Marina case. The contracts he was developing in Sirius, a city on the Black Sea that enjoys its own federal status and is a business center of the Russian elite, have been annulled and his assets seized, specifically apartment blocks, hotels and mooring for yachts. The Prosecutor’s Office filed the lawsuit on September 9 and the court handed down its judgment a week later, on September 15. The trial, which was conducted at full tilt, took place shortly after Deripaska’s outspoken criticism of the war.

Deripaska’s great rival, Vladimir Potanin, Russia’s second-richest man, has taken advantage of his opponent’s position of weakness to suggest that RUSAL should be merged with his mining giant, Nornickel, to shield itself from potential sanctions.

The media campaign against these magnates has intensified in line with battlefield defeats for Moscow’s troops on the ground in Ukraine. “They are accused of treason, of participating in plots on behalf of foreign governments and of supporting artists who oppose the war,” say sources within the liberal camp.

One of Russia’s leading proponents of state propaganda, television anchorman Vladimir Solovyov, has criticized big business for not supporting the invasion in Ukraine, while the veteran daily Moskovski Komsomolets, founded in 1919, published an analysis in November under the headline: “Russia needs the nationalization of strategic industries.” “The country wonders why we have key companies in the hands of private traders who profit from the war. They increased the prices of uniforms by 300% after the announcement of the mobilization,” the newspaper claimed.

This offensive against magnates on the Kremlin’s watchlist is also being waged on social networks. On the Telegram messaging app, a media outlet called Reports of the Novorossiya Militias, which has 297,000 subscribers, published a list of 10 oligarchs whose companies could be nationalized and how much money that could provide to the Kremlin’s coffers. The same outlet also accused Russian oligarchs of working hand-in-hand with Ukraine.

While the oligarchs attempt to adjust to the new scenario, the Russian economy is progressively transforming into a war economy. “It is an unsustainable stagnation,” says a recent analysis by the think tank Re: Russia, which is sponsored by the foundation of Dmitry Zimin, the first businessman to have a Russian firm – telecommunications company VimpelCom (now VEON) – listed on the New York Stock Exchange.

According to the report, the Russian economy has managed to prevent total collapse for now “thanks to the increase of production for war needs and import substitution in a technological regression.” That is to say, by the substitution of goods and equipment for poorer quality and cheaper domestically produced alternatives. According to the think tank, this stagnation is unsustainable in the long term because the consumer economy has collapsed and industry is only clinging on due to the supplies required for the mobilization decreed by Putin: clothing, transport, optical and electronic equipment “intended for the destruction of Ukrainian infrastructure.”

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