Email This Post - Print This Post Print This Post

“There are two famous last words,” Charles Bohlen, a US Ambassador to the Soviet Union at the start of the Cold War, once warned. “One is ‘alcohol doesn’t affect me’. The other is ‘I understand the Russians’.” Russians who confidently say they know what the Kremlin is about to do fall into both categories. Russia’s remaining oligarchs – those who are not in prison, or in foreign exile -understand Bohlen’s warning. That’s what makes them especially nervous these days.

One reason for the uncertainty is that the Kremlin, like staffs of the head of state the world over,is overwhelmed with too much work, too little coordination, and too many enemies to be dealt with all at once. A second reason is also common to the rest of the world: clever politicians never telegraph their punches. A third reason is a Russian particularity, which is the legacy of former President Boris Yeltsin. In the name of wrecking the Communist Party, Yeltsin near-destroyed the apparatus of command and control on which the state depends. To the end of preserving his personal power, he initiated divide-and-rule tactics that continue to pit Kremlin faction against faction, in a fashion that President Vladimir Putin is hard-pressed to rule.

Putin therefore allows it to be known that he needs help in his campaign to recapture the state from the hands of the oligarchs who took it from Yeltsin. This is one reason why Sergei Stepashin, head of the Accounting Chamber, is mounting an independent strike against Roman Abramovich, after checking first with Putin to see if he would say no. Not all Kremlin factions favour the move; some, because their priority is to deal with the President’s political enemies, or with the state’s security threats; and some, because they have their hands full managing the campaign against just one oil company Yukos. So long as Abramovich was telling Putin how helpful he could be against Yukos shareholders Mikhail Khodorkovsky and Leonid Nevzlin, there has been an unwillingness among some of Putin’s advisors to start a campaign against Abramovich.

Not that there isn’t enough documented material in security agency files to spearhead such an attack. However, the problem for the Kremlin is that its intelligence resources are better suited to assembling the cashflow evidence for indictments of money laundering, fraud, grand larceny, and other charges – after the crimes have been committed. They are not well adapted to predicting in advance what the oligarchs are planning to do with their foreign bankers and lawyers, or how they are spiriting their cash beyond Russian means of control.

The President’s men can read in newspapers that Mikhail Fridman, head of the Alfa banking group, and Victor Vekselberg, the TNK oil and SUAL aluminium oligarch, want to cash out their $3.8 billion stake in British Petroleum shares; but they don’t believe the money will return to Russia. They can speculate on what Vekselberg was recently doing in South Africa, but they don’t know for sure.

The Kremlin staff was not able to anticipate major offshore transactions, such as Vladimir Potanin’s $1.2 billion purchase of a 20-percent stake in the South African goldminer, Gold Fields, in March; or Oleg Deripaska’s sale this month of the Samara and Belaya Kalitva aluminium rolling plants to the US corporation, Alcoa; small though that looks, compared to most other oligarch cash-out deals. What seems certain is that Potanin and Deripaska didn’t ask the Kremlin for permission in advance. What is now up in the air is whether the President will be advised to let them get away with it, or not.

How the Kremlin is directing the outcome of the Yukos affair is indicative of the likely answers to that question. What is already in evidence is that the Kremlin has chosen to install its own trustee in charge of the Yukos board of directors. Victor Gerashchenko’s role will not be to dismantle Yukos, and sell off its assets. He is likely to do a better job of keeping the company together than he did, under Yeltsin’s direction, of preserving the rouble zone, a decade ago. But let there be no mistake. Gerashchenko has not been engaged to use his own initiative or entrepreneurship. He will follow Kremlin orders. These are likely to include the separation of Yukos from Sibneft.

But just as Gerashchenko will oversee the new Yukos, Sibneft is likely to find itself under a similarly appointed guardian, with a similar mandate. Selling off large stakes in either oil company to foreign oil companies won’t be allowed. Just in case the new board chairmen cannot keep their eyes on everything at once, loyal Kremlin men with forensic accountancy backgrounds will be placed in charge of the oil cashflows.

It takes years to train and test such expertise. It cannot be hired from international firms, whose well-known names have become synonymous in Russia with qualified account statements and misleading balance-sheets that conceal the trading and tax avoidance schemes which the Putin administration has pledged to stamp out. There is no reason for the Kremlin to stop with Yukos and Sibneft. There are already signs that Norilsk Nickel, Potanin’s preserve, will follow suit, as tax reparations owed by Potanin to the state are transformed into a golden state shareholding, supervised by a Kremlin appointed chairman of the board.

Russian Aluminium (Rusal) – the creation of Abramovich and Deripaska – cannot be immune to this process, if and when it begins. But those qualifiers are big ones.

For reasons particular to those involved inside the Kremlin, it may happen that Abramovich and Potanin negotiate a stay of judgement, and Deripaska goes first. But when the President needs help, knowing what will happen next is far from a sure thing.

Leave a Reply