#7 - JRL 7248
The Scotsman
July 5, 2003
The secret life of Russia's millionaires
TOM PARFIT IN MOSCOW
RUSSIA’S multi-millionaire tycoons could afford themselves a sly grin as they sank into their leather armchairs during a break at the Russian Economic Forum in London earlier this year.
Even former Kremlin insider Boris Berezovsky - who lives in self-imposed exile in London and faces extradition to Moscow on charges of embezzlement - looked relaxed in an open-necked shirt.
Smiling and mumbling platitudes about transparency and corporate governance, the financiers charmed a number of attentive British investors.
Once vilified as "robber barons" and plunderers of their motherland, Russia’s so-called oligarchs have acquired a silvery sheen of respectability in recent years.
Boosted by high oil prices and renewed confidence in Russian markets, these super-rich businessmen are extending their tentacles into Europe.
The most recent and startling example was this week’s acquisition by billionaire Roman Abramovich of Chelsea Football Club, in a deal worth £140 million.
Mr Abramovich, 36, an oil magnate who is also governor of the Siberian Chukotka region, has said he is interested in "fun and trophies" rather than making cash.
But whether he treats the club as a plaything or a money-spinner, Chelsea fans are rightly suspicious of his background.
Mr Abramovich - with a personal fortune close to £4 billion - is one of an elite group of stupendously wealthy businessmen, or oligarchs, who amassed their fortunes during the "wild era of capitalism" under Russia’s first president, Boris Yeltsin.
Russia today has 17 billionaires, a staggering amount for a country that is poorer on a per capita basis than Portugal.
Keen to protect their wealth and bring in foreign capital, the oligarchs have recently cleaned up their act, giving grudging respect to minority shareholders in their business empires and feigning openness in their corporate affairs.
Some - like the exiled Mr Berezovsky - have styled themselves as victims of political oppression, champions of civil liberties, or generous donors to charity.
This may fool foreigners at glitzy forums, but few Russians have forgotten the beginnings of these Armani-trousered philanthropists.
The oligarchs’ rise to prominence dates back to the late 1980s and the first meetings of a group of egghead economists known as the "young reformers".
When communism was toppled in 1991, these ambitious young men persuaded Yeltsin to let them kickstart Russia by smashing the centralised economy, liberalising prices and selling off state assets.
Using "shock therapy", they aimed to create an economic system based on market forces.
Led by Yegor Gaidar, who was later prime minister, these capitalist revolutionaries devised a plan to sell off the nation’s wealth by "voucher privatisation".
Millions of vouchers - a form of bond giving a share in the country’s assets - were distributed among ordinary Russians. But few people understood their real worth, and many were traded away for food and vodka.
Savvy entrepreneurs snapped up the vouchers gaining vast stakes in manufacturing, natural resources and the media.
In a short time, the "magnificent seven" businessmen - the original oligarchs - had accumulated almost half the wealth in Russia. Their names were Boris Berezovsky, Mikhail Friedman, Mikhail Khodorkovsky, Vladimir Potanin, Vladimir Gusinsky, Alexander Smolensky and Vladimir Vinogradov.
The list has since swelled. But these men were the original symbol of New Russian wealth in the heady days of the 1990s.
As GDP dropped by 41 per cent and the country plunged into poverty, the oligarchs, clad in Versace and swept from meeting to meeting in blacked-out saloons, grabbed assets with ill-concealed glee. Pre-eminent among them was the diminutive Mr Berezovsky, a former mathematician.
He used his role designing industrial systems in the late Soviet era as an entrée to Avtovaz, the enormous car factory on the Volga. By setting up a dealership that bought the plant’s Lada cars and by selling them at inflated prices, he laid the foundations for a huge business empire that would include oil and media assets. His personal fortune is estimated at £2 billion.
Mr Berezovsky has always been unrepentant about his role at Avtovaz and in other business affairs during the Yeltsin era.
"If we had had not just ten oligarchs, but more like 1,000, all of Russia’s problems would be solved," he once said in an interview with the BBC.
It was not long before Mr Berezovsky reached the Kremlin itself. A nexus of political and business interests sucked him into "the Family", the group of associates close to Mr Yeltsin.
Mr Berezovsky soon introduced his latest protégé to the president. It was Roman Abramovich.
A successful oil trader, Mr Abramovich had already survived several investigations into his commercial affairs. Over the next few years he came to typify the new brand of Russian tycoon, with fingers in numerous pies, both at home and abroad.
Crucially, his role as a provincial governor gives him a hand in politics, and he is said to be on good terms with the president, Vladimir Putin.
Mr Abramovich’s £3.8 billion fortune was made at home - built on stakes in the Sibneft oil company, aluminium holdings and a share of the ORT television channel.
He lives as a virtual recluse on a 42-acre estate outside Moscow.
However, like several other oligarchs, he controls his interests through a UK registered company and is constantly expanding his interests abroad. And he says that he may move to England in the future.
During the wild days of the 1990s, Russia’s emerging business class acquired all the trappings of the nouveaux riches: $100,000 wristwatches, armoured Mercedes and Jeeps, holidays on the Côte D’Azur and in the Swiss Alps.
At the end of the night, their chauffeur-driven saloons, fitted will illegal flashing lights and sirens, sped home from Moscow’s casinos and nightspots to elite spots like Uspenskoye Shosse, a highway to the northwest of the capital.
Here they sipped on cognac and smoked Cuban cigars in mansions patrolled by teams of private security guards that were once home to Soviet apparatchiks.
The real oligarchs - a tier above the average "New Russian" businessmen - were less ostentatious with their wealth.
In the 1990s, they preferred to discuss their intrigues in the smoky but private clubhouse of Mr Berezovsky’s Logovaz car dealership. They kept on the move, shuttling between numerous villas, apartments and country houses.
Today’s tycoons are yet more reclusive and seldom mingle with each other. Mr Abramovich is so rarely seen that a newspaper once offered a prize for pictures of him.
The lure of Belgravia mansions and expensive schools for their children is proving irresistible for Russia’s wealthy elite. Estate agents estimate that up to a third of foreign investors in London’s property market are Russians with an eye on tax breaks for non-domiciled residents.
What’s more, a pair of brogues and a Savile Row suit can work wonders for the image of a retired bandit capitalist.
That said, a whiff of scandal is never far away.
Oil baron Mikhail Khodorkovsky, Russia’s richest man and a high-profile sponsor of the Hermitage Rooms at London’s Somerset House, was yesterday questioned in Moscow after his main business ally was charged with theft of state property in connection with the privatisation of a fertiliser company in 1994.
Chelsea fans can only hope that some scandal from the past about its new cheerleader, the billionaire Roman Abramovich, does not come crawling out of the woodwork.