What is Putin’s Endgame With Americans Detained in Russia?
The investor Michael Calvey and former U.S. Marines Paul Whelan and Trevor Reed could prove to be valuable bargaining chips for Russia under a Biden administration.
One of the first challenges Joe Biden will face as president is how to deal with Vladimir Putin, leader of the country that Biden has labelled the biggest threat to the United States. In contrast to the impetuous and inconsistent Donald Trump, Putin is generally seen as a resolute leader, who unflaggingly pursues his country's foreign policy goals, however malign. But the cases of three Americans who are currently detained in Russia belie this image of Putin, portraying instead a leader who is dysfunctionally beholden to the interests of his security services and the corrupt clans who form his power base.
The case of American investor Michael Calvey, which should be decided by a Moscow court within the next few weeks, offers a particularly striking example of how Putin has allowed a corrupted legal and financial system to undermine Russia’s broader interests. Calvey, arrested along with five others in February 2019 on bogus fraud charges, founded the highly successful private equity firm Baring Vostok, which since 1994 has brought over $3.7 billion of capital into Russia.
A fluent Russian-speaker with a Russian wife, Calvey always played by the rules, never criticizing Putin, and was highly respected in the Russian business community. As Leonid Bershidsky of Bloomberg News noted after the arrests: “Calvey became a legend in the Russian market, in part because of his reputed aversion to any kind of foul play and focus on industries and companies unlikely to attract the attention of Russia’s authorities.” Russian billionaire Leonid Boguslavsky said in an interview last week that Calvey had been his inspiration and teacher when he, Boguslavsky, was advancing his investment career in the 1990s.
Calvey’s downfall came as a result of a 2017 merger between Vostochny Bank, in which Baring Vostok had a majority stake, and a bank called Uniastrum, owned by an avaricious 44-year-old businessman named Artem Avetisyan, who is a Putin favorite. When Avetisyan and his partners attempted to exercise an option on 9.9 percent of Vostochny Bank’s shares in 2018, Baring Vostok refused, because of evidence that assets worth billions of rubles had been withdrawn from Uniastrum Bank before the merger. Baring Vostok then filed claims of fraud against Avetisyan for 17.5 billion rubles (around $276 million) in the London International Arbitration Court.
In apparent retaliation for the London lawsuit, Avetisyan’s partner Sherzod Yusupov went to the FSB in February 2019 with a claim that Calvey and five associates from Baring Vostok had defrauded Vostochny Bank of 2.5 billion rubles ($38 million at the time). According to the claim, Calvey and his colleagues had repaid a bank loan for that amount with shares from a Luxembourg company called IFTG that were worth only 600,000 rubles. In fact the transaction was approved by all the bank’s shareholders, including Avetisyan and Yusupov, and a September 2019 re-evaluation of the IFTG shares established their worth, with restrictions on them lifted, at more than 3 billion rubles. Significantly, officials from the Economic Security Department of the MVD (regular police) had earlier conducted an audit of the bank transactions that later formed the basis for the criminal case, but found no illegalities.
After his arrest, which sent shockwaves throughout the Russian investment community, Calvey spent several weeks in Moscow’s notorious Matrosskaya Tishina Prison (where Sergei Magnitsky died) before being transferred to house arrest in April 2019. Two months later, a Russian arbitration court in the Far Eastern region of Amur forced Baring Vostok to sell 10 percent of Vostochny Bank stock to Finvision, a holding company owned by Avetisyan, thus awarding him and his partner Yusupov control of the bank, which has continued to show significant losses.
Calvey and his partners had come up against a powerful lobby. Avetisyan, a skilled self-promoter, heads the New Business Division of the Agency for Strategic Initiatives, a Kremlin-sponsored project that puts him in regular contact with Putin, who chairs the agency’s advisory board, where Avetisyan serves. Also on the board is Putin's top economic advisor, Andrei Belousov, who in June 2020 was appointed first deputy prime minister of Russia. Although he and Avetisyan are known to have a close friendship, Belousov denied reports that he was Avetisyan’s go-between with Putin on the Calvey affair: “I have known Artem Avetisyan for a long time. He is my friend, we go to the mountains together…But over my long years of service, I have learned to separate personal and official relationships.”
Also useful for Avetisyan is his close acquaintance with Dmitry Patrushev, son of former FSB chief Nikolai Patrushev, head of Putin’s National Security Council. Avetisyan served with Dmitry on the board of the Russian Agricultural Bank, which Dmitry ran prior to becoming Russian Minister of Agriculture in 2018. In addition to membership on the boards of several Russian companies, Avetisyan is a member of the FSB’s Public Advisory Council, an exclusive body that presumably gives him direct access to FSB officials.
As if Avetisyan’s personal and business ties were not enough to promote his vendetta against Calvey and Baring Vostok, in June of this year, the media company bne Intellinews claimed to have obtained a tranche of letters that Avetisyan had sent to Putin, the FSB and the Russian Central Bank, in which he falsely accused Baring Vostok of a series of illegalities, including bribing a former chief of the Russian security services, Vadim Bakatin, a born-again Russian democrat who once served as adviser to the firm. Avetisyan did not respond to requests for comments about the letters.
On Oct. 28, just after Deputy Prosecutor-General Viktor Grin approved the indictment against Calvey and his associates, Vostochny Bank and the defendants reached a settlement of their civil dispute. In exchange for a payment of 2.5 billion rubles by Baring Vostok, the bank agreed to drop the civil charges that give rise to the original criminal case. Presumably as a result of this settlement, the Supreme Court on Nov. 12, the date that the arrest orders expired, ordered the release (with some restrictions) of Calvey and the others from house arrest.
Despite the hopes expressed by lawyers for Calvey, Russian legal experts doubt that the Calvey case, which is due to be heard sometime before Jan. 12, 2020, will end in an acquittal. “[Exonerating Mr. Calvey] would mean explaining to Putin the case was a mistake and nobody wants to do that,” a source who was involved in the legal negotiations said earlier this fall.
According to one prominent lawyer, “in Russia, procedurally agreeing to compensate for damage does not mean that the defendant has admitted guilt. But in practice, courts and investigators often perceive it this way.” More likely is that the judge will consider the paid compensation as a mitigating factor and impose a more lenient sentence (the maximum being 10 years) so that with the time served, the defendants will be released.
Barron’s recently quoted a top Russia financial analyst on the Calvey case: “This has been one of the most damaging events in Russia's economic history and has directly led to foreign investment decisions in Russia being cancelled or suspended.” Many members of the Russian business elite, including Kirill Dmitriev, head of the Russian Direct Investment Fund, Yandex CEO Arkady Volozh and Anatoly Chubais, head of a state technology fund, have spoken out strongly in Calvey’s defense. Billionaire Boguslavsky called the prosecution of Calvey and his partners “a case of blatant injustice and cruelty” that should be stopped immediately.
In fact, what happened to Calvey happens to Russian businessmen on a regular basis. Just in October, Mikhail Khabarov, first deputy chairman of Trust Bank, was arrested for large-scale fraud following a complaint by a former partner. The phenomenon of “raiding” (reiderstvo)—whereby entrepreneurs are criminally charged and forced to relinquish their assets to other businessmen, with law-enforcement officers getting a cut—has become so widespread that Putin has even complained about it publicly. But he has done nothing to stop it.
In contrast to Calvey, former U.S. Marines Paul Whelan and Trevor Reed face the possibility of years behind bars in Russia. Whelan, who was arrested by the FSB in his Moscow hotel room on espionage charges in December 2018, is an unlikely CIA spy. Not only was he dishonorably discharged from the Marines in 2008 for theft, he had for years openly pursued a close friendship with a Russian, Ilya Yatsenko, who worked for the FSB. (Last week, in his first interview since his arrest, Whelan insisted that his friend Yatsenko worked for the border guard, not the FSB. Whelan was apparently unaware that the Russian border guard has been an integral part of the FSB since 2003.) After accepting a thumb drive from Yatsenko that allegedly contained FSB secrets—Whelan thought it was holiday photographs—he was tried and sentenced to 16 years in a strict regime penal colony located 300 miles east of Moscow, in Mordovia, home of the former Stalinist gulag.
Reed, 29, was arrested during a May 2019 visit to Moscow to see his Russian girlfriend. After Reed got uncontrollably drunk at a party, his friends called the police because they were worried about his safety. He was later accused, with no proof, of assaulting two police officers on the way to station. (It is unclear whether the police had handcuffed Reed or had a video camera in their car.) In July of this year, Reed was sentenced to nine years imprisonment—an extremely harsh sentence by any standards. The Moscow City Court is currently considering an appeal against the sentence that Reed filed in late October. Russia’s aim in what appears to be blatant hostage-taking of these two Americans is apparently to get the U.S. to agree to a prisoner exchange for two Russians in U.S. prisons—the notorious arms trader Viktor Bout, currently serving a 25-year sentence for terrorism, and Konstantin Yaroshenko, who was sentenced in 2010 to 20 years behind bars for drug smuggling.
In his recent interview with ABC from his prison camp, Whelan expressed optimism that he would soon be released as part of a swap, which his captors have suggested might happen. (This may be one reason why prison authorities allowed Whelan this unprecedented interview.) But although Trump has reportedly urged Putin to release Whelan and Reed, along with Calvey, there has been no progress. Whelan’s Russian attorney, Vladimir Zherebenkov, said in October that no decisions would be made until after the U.S. elections, so clearly the Kremlin will be recalculating its position now that Biden has been elected president.
Putin has pretended to remain above the fray. In a March 2020 interview with TASS, he said of the Calvey case: “We need to proceed from our country’s legislation and the supremacy of Russian law… I cannot say if he is guilty or not until there is a well-founded [court decision].” But Putin is doubtless consulted before any key decisions are made. According to a top Putin aide, Calvey’s French partner, Philippe Delpal, was transferred from prison to house arrest in August 2019 because of upcoming talks between Putin and French President Emmanuel Macron. And the release of Calvey and the other defendants from house arrests just days after U.S. presidential elections suggest that Putin might have been extending an olive branch to Biden.
A source familiar with the Calvey case told me that “having Trump tweet or ask Putin for a favor would not be helpful.” But Biden, who has criticized Trump for not speaking out about the poisoning of Alexei Navalny, has a more clear-eyed view of Putin. With Antony Blinken, a known advocate of a tough stance against Russia, as his secretary of state, Biden will be in a strong position to negotiate successfully with the Kremlin over the detained Americans. (Russia’s Kommersant reported Tuesday that foreign policy experts in Moscow have been sending each other the link to Blinken’s 2017 interview with PBS, in which he accused Putin of establishing a kleptocracy.)
As former U.S. ambassador to Russia Michael McFaul said last April, it would set a dangerous precedent if Washington would agree to exchange either Bout or Yaroshenko for Whelan or Reed: “There’s a real asymmetry swapping an innocent American for a real convicted criminal who just happens to have Russian citizenship.” And such an exchange might encourage the FSB to engage in further entrapments of innocent foreigners in Russia.
But the Biden administration would have other strategies available to address the three cases, including threatening the Kremlin with harsher economic sanctions. Although sanctions against Russia are often criticized for being ineffective, they have been a powerful tool when used in coordination with European allies. Also, in addition to Russian officials who are directly responsible for the Kremlin’s misdeeds, sanctions could target, with travel bans and asset freezing, more of those wealthy Russian businessmen who gain financially from Putin's corrupt system.
Calvey’s enemy Avetisyan might be first on the list. In a 2011 interview, Avetisyan said he could not imagine living abroad because he had a strong “Russian mentality.” But that has not stopped him from acquiring over 20 million Euros worth of luxury properties in Tuscany, along with an Italian residence permit.