Putin’s Panama Papers Caper

Years of rumors about the Russian ruler’s incredible fortune moved closer to fact this weekend with a leak far eclipsing WikiLeaks’ cables or Snowden’s revelations.

Photo Illustration by The Daily Beast

“The person who bought the land, scared the local residents, burning down their little houses if they refused to sell them, was a St. Petersburg officer who turned out to be none other than Vladimir Vladimirovich Putin.”

So spoke Lt. Col. Andrey Zykov, of Russia’s Investigative Committee, in a YouTube testimonial in 2012. Zykov was referring to the Ozero (“Lake”) Cooperative, a strip of properties lining Lake Komsomolskoye in St. Petersburg, where, in the mid-’90s, Russia’s future president was implicated in financial crimes relating to his work in the administration of the city’s mayor, Anatoly Sobchak. Putin, according to Zykov, built himself a $500,000 house on the lake, situated on two adjacent plots—“as well as a villa in Spain.” The house actually burned down, owing to a stove poorly installed inside the sauna. So Putin persuaded the contractors to rebuild the entire home all over again—for free.

This anecdote, recounted in Karen Dawisha’s 2014 book Putin’s Kleptocracy: Who Owns Russia?, moved a step closer from plausible but unconfirmed accusation to compelling likelihood this weekend with the publication of the so-called Panama Papers, an in-depth exposé on offshore companies registered by Mossack Fonseca, a Panama-based law firm and the fourth-largest provider of corporate services in tax-friendly jurisdictions.

A host of global leaders, from the king of Saudi Arabia to the prime ministers of Iceland and Pakistan and the presidents of Azerbaijan and Russia, have been implicated as the ultimate legal beneficiaries of little-known corporate entities controlling assets in the billions of dollars. The private legal documents, totaling 2.6 terabytes of data and reviewed by more than 370 journalists from 76 countries, constitute one of the largest leaks of sensitive documents in history, far eclipsing WikiLeaks’ State Department cables and Edward Snowden’s National Security Agency revelations.

Front-page items on Putin’s personal fortune have predictably dominated international coverage of the Panama Papers. The disclosures build on investigative work previously carried out by The New York Times and Reuters, depicting a cabal of crony capitalists centered around Putin, many of whom are thought to be plausibly deniable holding agents for his exorbitant assets. Two were founding members of the Ozero Cooperative.

The first is Yury Kovalchuk, a man on whom the U.S. government imposed sanctions in 2014 over Russia’s invasion of Ukraine, calling him “essentially the personal banker for many senior government officials of the Russian Federation, including President Putin.”

Kovalchuk is the head of Bank Rossiya, which began as a tiny bank in 1990, founded by the Leningrad (now St. Petersburg) branch of the Communist Party. Today the bank holds close to $11 billion in assets, including Gazprom Media Group, the owner of most of the Kremlin’s state television and radio networks. That makes it the financial cornerstone of Putin’s domestic and foreign propaganda apparatuses and Kovalchuk the oligarch most often likened to Rupert Murdoch.

Washington also imposed sanctions on Bank Rossiya as a result of the Ukraine crisis, along with the bank’s minority shareholder, Gennady Timchenko, a principal founder of Swiss commodities trading giant Gunvor, which specializes in the energy sector and in which, the U.S. Treasury Department has stated, Putin has investments and “may have access to… funds.”

Bank Rossiya is also mobbed up. One of the major early owners of the bank was Gennady Petrov, the crime boss and leader of the the St. Petersburg-based Tambov Gang, one of the most notorious Russian mafias of the post-Soviet period. Petrov, along with 19 other members of the Tambov Gang, was arrested by Spanish authorities in 2008. According to a 488-page complaint presented to Spain’s Central Court, Petrov government accomplices include past and present members of the Putin administration, from Viktor Zubkov, formerly prime minister and Gazprom chairman, to Anatoly Serdyukov, Zubkov’s son-in-law, who was sacked as Russia’s defense minister in 2012 after being named in a far-reaching corruption scandal. Other figures allegedly linked to Tambov are Deputy Prime Minister Dmitry Kozak and Alexander Bastrykin, the chairman of the Investigative Committee, who was a classmate of Putin’s at Leningrad University.

The Panama Papers reveal that Kovalchuk and Bank Rossiya transferred $1 billion to an offshore company called Sandalwood Continental. That sum arrived in the form of highly questionable unsecured loans from Russian state banks, including the Russian Commercial Bank (RCB), a Cyprus-based subsidiary of another U.S.-blocked bank, VTB. As reported by The Guardian, one of more than 100 news organizations to partner with the International Consortium of Investigative Journalists (ICIJ) in analyzing the Panama Papers, “There is no explanation in the files of why the banks agreed to extend such unorthodox credit lines. Some of the cash obtained from RCB was also lent back onshore in Russia at extremely high interest rates, with the resulting profits siphoned off to secret Swiss accounts.”

Among Sandalwood’s eyebrow-raising purchases was a $6 million yacht that was shipped to a port near St. Petersburg. Other money, in the form of loans absent any collateral or ridiculously low interest rates, were distributed to Ozero members, such as Kovalchuk. In particular, beginning six years ago Sandalwood issued a series of three loans equaling $11.3 million to a company called Ozon, the legal owner of the Igora ski resort, which lies about an hour’s drive away from the Ozero Cooperative. Ozon in turn is owned by Kovalchuk and a Cypriot company. Putin is said to have a heavily guarded compound residence at Igora and, in February 2013, his youngest daughter, Katerina Tikhonova, was married in secret there to Kirill Shamalov, the son of another well-remunerated Putin ally and Ozero member, Nikolai Shamalov.

In 2009, Shamalov was named by Russian whistleblower Sergei Kolesnikov as the nominal owner and overseer of a $1 billion “palace” on the Black Sea, a sprawling complex complete with three helipads and an amphitheater, which, Kolesnikov insisted, was built for the personal use and ownership of Putin.

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Perhaps most surprising of all the Panama Papers’ Russian revelations is the role that a St. Petersburg cellist and musical director has played in controlling a good chunk of Putin’s personal fortune. Fittingly, the man is also Putin’s best friend and godfather to his first-born daughter, Maria. Sergei Roldugin was previously known to own 3.2 percent of Bank Rossiya’s shares. He has now been outed as raking in $9.2 million a year and keeping $27 million in cash via a hitherto-undocumented 12.5 percent stake in Video International, Russia’s largest advertising agency, which at one point controlled 70 percent of the country’s ad market. Video International was founded by Mikhail Lesin, Putin’s former press minister, who turned up dead last November in a Dupont Circle hotel in Washington, D.C., the result of “blunt force injuries of the head” and “the neck, torso, upper extremities, and lower extremities,” as the city medical examiner announced months later.

Roldugin, according to the Organized Crime and Corruption Reporting Project, “controlled directly or indirectly a group of affiliated companies that controlled a significant share of a business empire” that engaged in dodgy transactions with Russia’s biggest state-owned enterprises, or took “donations” from high-profile Russian businessmen, or incredibly favorable loans from RCB.

In a lengthy 2014 report on Bank Rossiya’s opaque ownership and practices, The New York Times was not able to link to Roldugin to Video International, which was tenuously linked to the financial institution through a chain of front companies—one of which was legally domiciled in a concrete house in Nicosia belonging to the mother of the Cypriot lawyer who registered Med Media Network Limited and acted as its director. “I don’t have millions,” Roldugin told the Times in relation to his disclosed Bank Rossiya interest.

The Organized Crime and Corruption Reporting Project has at least acquitted Roldugin of mendacity on this score. “He doesn’t have millions,” it reported. “He has billions.”