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Putin’s Richest Pal We Know So Little About [1]
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Date: 2023-02-17
Two Vlads: Vladimir Putin (white helmet) and Vladimir Potanin (red helmet) after an ice hockey match in Red Square
By now, there’s hardly anyone who hasn’t heard the bombshell news about how the most notorious Russian Oleg Deripaska ensnared a top FBI officer Charles McGonigal. The story has been studied in granular detail by pretty much every single media in the US. So much so, that there are hardly any gaps left. Except maybe for one, which I am going to focus on in this article – the man who was described as ‘Oligarch-2’ in the indictment against McGonigal.
Last week Forbes broke a story uncovering the mystery behind ‘Oligarch-2’. According to the author’s source, the oligarch whom, as DOJ alleges, the ex-FBI officer may have been probing on behalf of Deripaska, was likely Vladimir Potanin, Russia’s wealthiest man, the ‘nickel king’ and a close Putin friend – slash – hockey-buddy. Sadly, the Forbes story stops short at that despite the juicy details of the indictment about offshores and dark web information related to Vladimir Potanin.
You may have come across his name at the end of last year when the US imposed sanctions on him citing Vladimir Potanin’s role as former deputy prime-minster (third-in-command in Russia’s political hierarchy), as well as his close ties to Vladimir Putin (spoiler: there’s a little more to their relationship than just identical first names and very similar sounding surnames).
Yet in contrast to the likes of Deripaska, Abramovich, Prokhorov, and a whole bunch of other notorious Russian billionaires, this man is somewhat of an enigma who rarely makes headlines in the US despite owning c. $29 billion dollars. But thou shalt not be fooled as to his influence in Russia, closeness to President Putin and hence the potential risks the man can pose to our national security.
I’ve set out on a small quest to remedy the injustice and tell you a little more about the Russia’s wealthiest oligarch who earns more than our very own oligarch Jeff Bezos. I’ll be citing public reports as well as some Russian sources (finally, my sophomore Russian classes are coming in handy!). I may or may not turn this into a whole series about Russian tycoons – some of them, including the above-mentioned Oleg Deripaska, are particularly important to Russia’s economy and hence it’s important that we understand the origins of their wealth (as per the argument from my previous articles).
Not-so-humble beginnings
According to Wikipedia, Russia’s wealthiest oligarch was born into a high-ranking communist family. Potanin attended the prestigious Moscow State Institute of International Relations – Russia’s Harvard of sorts. One could say that he’s been well received in government offices since the very cradle. Upon graduating MGIMO in 1983, he followed in his father's footsteps and went to work for the Foreign Trade Office of the Soviet Union.
Vladimir Potanin in the early 1990s
Now to give you some context, late 80s and early 90s in Russia were the time when the USSR was going through perestroika – a transformation of the entire political and economic system of the country. That period was characterised by an absolute disregard for the law when ties to organised crime helped you gain wealth and power, when there was essentially no difference between state officials and mobsters, and when state assets could be bought for kopeks on a rouble. Right around that time Potanin went into private business.
Presumably using his and his father’s connections in the Soviet apparatus he founded a company called ‘Interros Foreign Trade Association’ that traded metals. Together with his fellow Mikhail Prokhorov (ex-owner of Brooklyn Nets most famous for his appearance on The Late Show with Stephen Colbert) Potanin later founded two banks, Oneximbank and the International Company for Finance and Investments. According to media reports the latter was where major state entities kept their cash.
‘Loans-for-Shares’
I first came across Vladimir Potanin when I was making my first steps in investigative journalism learning about privatisation in Russia. As I wrote in my previous article, Russia’s privatisation schemes of the 1990s were essentially corrupt scams that ripped off the population, created a huge inequality gap between the super-rich and the poor and landed major Soviet industrial companies in the pockets of a tiny cohort of people with close ties to the Kremlin.
Boris Yeltsin and Russia’s original oligarchs, participants of largest privatisation schemes
Those schemes minted a new class of super-rich, politically well-connected, and influential – at least in that period of time – Russians, otherwise known as oligarchs (see my article on the different types of oligarchs). One of the most infamous privatisation schemes known as ‘loans-for-shares’ was proposed to the Russian government by none other than Vladimir Potanin.
In 1995, whilst heading the Oneximbank, Potanin approached the Russian government with a suggestion that a consortium of major private Russian banks should finance the country’s budget deficit by lending money to the state. In return the banks would receive assets of Russia's most valuable state-owned companies as collateral. Those included some of the largest Russian oil, metals, and shipping companies.
According to the plan the banks would hold the collateral shares, make management changes in the companies, and then sell off the collateral in an auction in case the government defaults on the loans. Clearly, at that time no one expected the Russian government to pay off its debts. Government default was just a matter of time.
The said consortium of course included Potanin’s Oneximbank. That’s when Potanin truly struck gold. Or rather in his case – nickel. Once the government defaulted Potanin sold shares in Norilsk Nickel – the world’s largest producer of nickel and lithium – to his bank. Funnily enough, the bank used a short-term loan from the government(!) to finance the purchase and earned a 30% commission on the deal.
In an interview to the Financial Times Potanin admitted that the price he paid for one of the country’s most lucrative assets was inadequate, and the auctions were not transparent.
Strengthening Positions
To ensure that the results of the scheme wouldn’t be overturned Potanin and his nouveau riche oligarch fellas had to eliminate the risk of communist restoration. The return of communists to the Kremlin could result in renationalisation of unlawfully seized state assets. To prevent that the oligarchs joined forces and bankrolled Boris Yeltsin’s re-election campaign.
Meeting of the unofficial ‘Seven Bankers’ club. In the middle are its key people Boris Berezovsky and Vladimir Potanin
Again, as mentioned in my previous article, that’s when the so-called ‘Seven Bankers’ group formed. The group was headed by one of Russia’s most notorious oligarchs Boris Berezovsky, who among other things was known for making a fortune smuggling weapons to terrorists. The group consisted primarily of the beneficiaries of the loans-for-shares scheme, and along with Berezovsky and Potanin included Mikhail Khodorkovsky, Mikhail Fridman, Vladimir Vinogradov, Vladimir Gusinsky. The ‘bankers’ ultimately succeeded, and Yeltsin was re-elected.
Citing myself again:
“Successful re-election of President Yeltsin gave these oligarchs complete control over the access to budget money and basically all investment opportunities inside the country. Their ownership of the gigantic information resource of the major TV channels helped them churn out new narratives and form President Yeltsin’s opinion on almost all matters.”
Shortly after Yeltsin’s re-election Potanin was appointed Deputy Prime Minister, with the Ministry of Finance reporting to him. This position allowed Potanin to remove all regulatory and financial hurdles to complete the privatisation of assets within the loans-for-shares scheme. The new position also allowed him to participate in and approve other schemes. Among other things he was allegedly investigated for his role in a scheme that saw over $237 million siphoned out of the Russian budget. The criminal investigation was ultimately dropped on President Yeltsin’s command.
Left to right: Vladimir Potanin, Mikhail Khodorkovsky, President Boris Yeltsin, Vagit Aliperov
Once all legal framework to cement the results of the loans-for-shares scheme were put in place Potanin resigned to do ‘business’ again. But this time as the head of Norilsk Nickel.
Swearing Allegiance to Putin
Once Putin came to power, he created a new playing field for those who made their fortunes through illicit privatisation schemes. The rules were simple – you swear your fealty to the new tsar, or you end up either in prison or in exile. A couple of fear-inducing examples of reprisal against oligarchs Mikhail Khodorkovsky – who spent 10 years in prison – and Boris Berezovsky – who was forced into exile for the rest of his life – helped to rein other oligarchs in. Potanin acquiesced:
“The new regime was made clear to everyone […]. I think he [Putin] perceives the businessmen more as partners than as enemies.” BNE
Vladimir Potanin and Vladimir Putin
In a big Forbes profile on Vladimir Potanin one person close to him was cited saying that for Potanin it was important to have access to Putin, to be more than just a businessman.
After all, loyalty to Putin turned out to be quite a lucrative ‘business’. For example, in 2003, Putin allowed Potanin to export his earnings from Norilsk Nickel and invest them in a US corporation. In 2010, the Business Insider wrote:
“After protracted review by the White House, and lobbying from the Kremlin, Norilsk Nickel bought a 55% control stake in the Montana-based palladium miner, Stillwater Mining. Since then, Stillwater has been a loss-maker in every year, except for 2004 and 2006.”
In return, Potanin would employ Putin’s friends. In 2008, when Putin became Prime Minister, he asked Potanin to cede his position as the CEO of Norilsk Nickel to Putin’s close friend and KGB comrade Vladimir Strzhalkovsky. As the New York Times wrote, Vladimir Strzhalkovsky is a long-time associate of Putin, having served together in the KGB. Four years later, in 2012, when Putin returned to the Kremlin, Strzhalkovsky left Norilsk Nickel with a hefty $100 million pay-out check approved by Potanin.
On Putin’s command, Vladimir Potanin chipped in to fund one of Putin’s most praised projects – the 2014 Olympics in Sochi. The Olympics came to be known as the most expensive in history because of mind-blowing levels of corruption. According to Business Insider, Potanin spent $2.5 billion for a ski resort and other facilities in Sochi in the run-up to the Olympics.
Indeed, winter sports are a passion the two Vladimirs share. In 2018, the Financial Times wrote that Potanin often plays hockey with Putin in the so-called Night Hockey League. The Night Hockey League is a Russian amateur sports organization established in 2011 by President Putin, that brings together members of Putin’s inner circle to play alongside hockey veterans.
Vladimir Putin, left, and Vladimir Potanin at an ice hockey friendly match in Red Square
Cultural Whitewashing
To some of us in the US Potanin may be known as a donor of the Guggenheim Museum and the Kennedy Centre. But don’t let them fool you with their ‘generosity’. In May, CNN described Potanin’s donations as:
“a classic example of essentially trying to buy a better reputation … to distract from the fact that you’re still very much tied to an authoritarian regime.”
Vladimir Putin at Guggenheim museum inaugurating ‘Russia!’ exhibition sponsored by Vladimir Potanin
In addition, for Potanin it must have been a way to present Putin with yet another ‘soft power’ tool to spread his influence. In 2005, Potanin sponsored the ‘Russia!’ exhibition at the Guggenheim. Guess who was the main star and presenter at the exhibition? Vladimir Putin.
Just think about it – Russia’s wealthiest man in cahoots with the country’s authoritarian leader spent millions of dollars to have his name inscribed on the polished marble walls of the Kennedy Center alongside some of the most powerful people and companies in American history.
Vladimir Potanin’s name on one of the walls at the Kennedy Center
Not much of a family guy
In 2013, after 30 years of happy marriage Potanin announced to his wife that he was going to leave the family and get a divorce. Of course, every man (or woman) is in their right to apply for divorce. But it’s never that simple with Vladimir Potanin.
Vladimir Potanin with his ex-wife
According to an interview that his wife Natalia gave to Business Insider, Potanin was asking the courts to back-date the divorce to January 16, 2007. Why? Natalia believes it was because he was trying to hide assets from his ex-wife. Despite having all the wealth mother Russia could offer he did not want to share any of it with his ex-wife.
In the interview she also noted that Potanin ceased all contacts with his family, including his youngest son who was 14 years old at the time when Potanin served divorce papers.
Carpe Diem – Seize the Assets
Despite the sanctions stranglehold on Russia and its richest people, Potanin still feels relatively comfortable. So much so that he’s using the opportunity to benefit from the aggression and diversify his asset portfolio. For example, as I mentioned here Potanin seized a 35% stake in one of Russia’s largest banks after its founder Oleg Tinkov was pressured into selling it following his criticism of Putin and Russia’s invasion of Ukraine.
In an interview with the New York Times Tinkov said that the Kremlin contacted his bank executives and threatened to nationalise the bank if it did not cut ties with him. “I couldn’t discuss the price,” Mr. Tinkov said. “It was like a hostage — you take what you are offered. I couldn’t negotiate.” The actual amount was never disclosed, but Tinkov hinted that Potanin got his stake in one of Russia’s largest banks for pennies on a dollar.
Potanin’s holding company also acquired a stake in Rosbank from France’s third largest bank Société Générale in a fire sale, as Société Générale sought a quick exit from Russia. Société Générale reportedly lost $3 billion on this deal.
Outside Russia Potanin is also said to expand his business empire. The Moscow Times reported that companies affiliated with Vladimir Potanin invested in Iran – one of America’s staunchest enemies. At the same time, Putin-ally still seems to possess luxury real estate in Europe. Recently, Reuters reported that Potanin was still the beneficial owner of some swanky property in Central London, UK, even though he’s been sanctioned by the UK government.
What About Sanctions?
Today, 23 years since Putin came to power, Potanin is the last participant of the ‘loans-for-shares’ scheme who is still alive, managed to keep his fortune, continues doing business in Russia and is still part of Putin’s inner circle. After all, his loyalty to the Russian Tsar seems to have paid off.
“We are seeing Potanin not only as the dealmaker but also as the consummate political insider in Russia.” says Stanislav Markus, a professor at the University of South Carolina with expertise on Russian oligarchs, told Forbes in April as Potanin, a long-time ally of Russian President Vladimir Putin, bought up assets impacted by international sanctions on Russia and its wealthiest individuals. Forbes
Miraculously, so far Potanin managed to dodge sanctions relatively well. Despite his crucial role in Russia’s economy and his closeness to Vladimir Putin the US only sanctioned him 10 months after Russia launched its invasion of Ukraine.
At the same time, the Secretary of State made it clear that it won’t sanction Norilsk Nickel – the company that Potanin continues to run, and which pays billions of dollars in taxes enabling Putin’s war. It has been reported that in 2021 Norilsk Nickel paid a $2 billion fine into Russia’s federal budget – less than a year before the start of the Ukraine war – for leaking 20,000 tons of hydrocarbons in the Arctic.
Oil spill in Norilsk, a small industrial town in the Russian Arctic
Incidentally, the European Union still hasn’t followed suit with the sanctions. One reason, ostensibly, is the world’s dependence on nickel – a key raw material for batteries –, which Potanin has in abundance. Shortly after the war began, a representative of BASF, one of the largest producers of batteries for electric vehicles, said:
“If we were to end our collaboration with Nornickel on nickel supply, an important value chain for the European production of batteries for electric vehicles would be interrupted. There are currently no alternatives for locally sourced nickel in Europe.” Grist
It is therefore safe to assume that Potanin has strong European lobbyists in the face of BASF and other European industrial conglomerates on his side, who are clearly ready to close their eyes to the man’s wrongdoings, his evident ties to the world’s most ruthless dictator, and are thus indirectly implicated in sponsoring Putin’s bloody war in Ukraine.
Such inconsistency in the sanctions policy is hardly accidental. Once again it shows our hypocrisy. We are ready to sanction anyone as long as it benefits us or at least doesn’t directly affect us. However, when there are reasons to believe that sanctions can mildly affect us, we are fine with letting the crooks go. Such inconsistency is grossly wrong and is one of the reasons the Ukraine war has dragged on for an entire year.
So long as people in Putin’s inner circle, people implicated in this war and people and their companies that financially support Russia’s war efforts remain unpunished and undeterred, the war will continue to drag.
(Thank you for reaching this far! Please let me know what you think and suggest another oligarch for me to write about)
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