KAREN DAWIS HA

 

BLK000270

 

Z32 KAREN 

these affairs also pointed to the role of Baltik-Eskort, the primate security
company that provided armed security for Putin and Sobchak and was
said to be involved in collecting the e/ayomyy (black cash) that ?make[s]
the world go round? in St. Petersburg.139 Baltik?Eskort was believed to
be the cut?out that dealt with organized crime for the mayor?s of?ce. The
company?s owners, Roman Tsepov and ViktorZolotov, 5?worked with the
mayor?s of?ce to ful?ll orders that could not be put in the hands of of?cial
law enforcement agencies.? 14? The fact that Putin has kept Zolotov by his
side ever since?wraising him in May 2014 from head of his personal secu?
rity detail to ?rst deputy minister of interior and commander of the Inter?
nal Troops?munderlines his View of Zolotov as someone who is absolutely

loyal to him personally.

Putin and the St. Petersburg Real Estate Holding Co.

In April 1999 the German Federal Intelligence Agency, END, completed
an investigation and issued a report on money laundering in Liechtenstein
in which it was alleged that a previously unknown Russian?German ?rm,
the St. Petersburg Real Estate Holding Co. (SPAG), was heavily involved
both in laundering Russian money and in laundering money from other
sources, including the Cali drug cartel. Putin was listed as a member of
the advisory board of SPAG. On May 13, 2000, only four days after his
inauguration, police in Liechtenstein, acting on the END report and work-
ing with their Austrian colleagues, arrested the Liechtenstein founder and
leader of SPAG, Rudolf Ritter. Ritter also happened to be the brother of
the economy minister of the principality, population thirty?five thousand.
Copies of the report were obtained ?rst by Le Mamie and then by Der
Spiegel and other European, American, and Russian newspapers. Only on
May 23 did the SPAG website state that in anticipation of his inaugura?
tion, Putin had stepped down from the board.141 80 what was SPAG, and
what did it do for and with Vladimir Putin?

From the beginning SPAG connected Putin with Vladimir Smirnov,
and through Smirnov, with Vladimir Kumarin. Putin had already had

business dealings with Smirnov in 1991, when he signed a contract with

 

Putin in St. Peterst?mrg, 1990?1996 133

Smirnov?s Nevskiy Dom for the export of raw materials, as discussed earlier.
Smirnov claims they had actually met before that, in Frankfurt in 1991,
ccWhere the question of attracting the first private investors to our city was
decided.? 142 In 1992 Putin and Smirnov were part of a trade delegation to
Frankfurt, as a result of which, on August 4, 1992, they, along with partners
from Germany and Liechtenstein, registered the St. Petersburg Real Estate
Holding Co.143 From the beginning, according to German commercial reg~
istry documents obtained by Newsweek, Putin was listed as a member of
the advisory board,144 along with three other St. Petersburg city of?cials,
including German Gref.145 Mayor Sobchak wrote a letter to SPAG, saying,
c(We support you politically and administratively,? that was posted on the
SPAG website.M6 The company issued an IPO in Frankfurt in 1998 (WKN
724440, ISIN: DE0007244402) and sold shares for almost 500 euros per
share before they plunged to 35 euros in 1999 and then to .64 euros147
when German and Liechtenstein police raided the company of?ces as part
of a moneyulaundering investigationdetermined, the money?laundering scheme at SPAG
worked in the following way: Money from all kinds of licit and illicit
sources flooded out of Russia into a variety of Western banks and offshore
accounts in the early 19903. But these Russians also wanted to use this
money to attract other money into Russia, so the question was how to launhoneypot to gather more investors, and then repatriate it
so that it could be used to make legitimate property purchases inside Russia
that would secure and legalize the wealth of the originators. The possibility
also existed of purely scamming Western investors. As head of the Com?
mittee for Foreign Liaison, Putin could issue licenses for export that would
allow foreign currency and commodities to pass through the border and
issue import licenses for newly clean money to come back in. There were

many who agreed with Boris Berezovskiy?s claim that ?as stated in the press,

the ?roof? [keys/1.x] of SPAG and Ritter personally in Petersburg was Vladi~

1?49 and it is entirely reasonable to assume that, at a minimum,

mir Putin,?
Putin lent his name to SPAG in order to increase money flows into SPAG
and then into St. Petersburg and to lend the whole exercise respectability.

Putin and Yuriy Evov, the founder and president of the Bank of St. Peters?

BLK000271

134 KAREN DAWISHA

burg, set up the ?rst foreign currency exchange bureau?evidently inside
the mayor?s administration of?ces at Smolny itself?in 1991 to facilitate
these transactions, but also to garner further huge commissions.15?* And
as the Sal?ye Commission documented, there was hard evidence that the
city attached a fee, ranging from 25 to 50 percent, in return for granting
licenses. The KVS could also serve as a co?contractbr, so that dividends and
pro?ts would be paid directly to the KVS for use by the city and its of??
cials on an ongoing basis. Putin?s KVS managed a massive flow of money,
since in Russia in the early 19903 there were still severe foreign exchange
controls. And given St. Petersburg?s position as a port and frontier city, it
played a very signi?cant role in the overall exodus of moneymforeign trade
licensing being a key ?rst step in capital flight at this time. 153

The reputed head of the Tambov crime gang, Vladimir Kumarin, known
throughout Petersburg at this time as ccthe Night Governor,? got involved
in two subsidiaries of SPAG, called Znamenskaya and Inform-Future. Both
were licensed by Putin?s KVS in July 1994,154 and in both of them Smirnov
was listed as a co-owner. Kumarin himself estimated that Putin had signed
between eight hundred and eighteen hundred contracts during the early
1990s.155

The city of St. Petersburg was reported to have an initial 20 percent stake
in and in December 1994 Putin signed an order giving Smirnov
the right to vote ?our? (the city?s) shares. This was revealed in BND records
leaked to Newsweekm reprinted in Jiirgen Roth?s account of the role of
Russian dirty money in Germany,158 and recon?rmed in market analy-
ses of the company, which shows that by 2000 the city?s share had grown
to 27.58 percent.159 To safeguard and guarantee the deals, St. Petersburg
of?cials were put on the advisory board. At least two German directors
of the company con?rmed that they had met Putin at least seven times

?Ham?s imam-k sawed as the: prefarmd bank 17m mus: pf the pahiia: institutions. in St. Petersburg
and was so sixemss?il {that H.395 is paid its sharehoidms over 3,000 gamma: dividends. {:mv
became deputy minister af?nance in the ?rst 19min Petershm-g and
Paris: 3113," Valm?itina Mawienk? also had an interest in the bank when he: sun Sergey became
vita;- president, ?l?$pii?f his having been charged in WM with i-rabbery arid in?iction of bodily
harm {Criminal Case No. 333931.??

 

 

Putin in St. Petersburg, 1990?1996 135

in Frankfurt or Russia in the early 1990s.160 But apparently, and perhaps
unknown to the German banks that were involved, the company was
used from the beginning as a vehicle for signi?cant money laundering
by Kumarin and the Tambov crime gang.161 Writing for the St. Petersburg
Times, Catherine Belton comments on the international press coverage of
SPAG and on a book published in Germany by the investigative journalist
Jiirgen Roth: c?Roth traces the German investigators? probe to two indi?
viduals, Boris Grinshtein and Peter Haberlach, both of whom are under
suspicion of being the Tambov group?s point men in Germany, according
to his sources in German law enforcement. Investigators believe that one
of the ways funds were laundered through SPAG was via share issues in the
company. At least two companies connected to Grinshtein and Haberlach
are pinpointed by Roth as having taken part in such deals. In December
1994, a ?rm called E. C. Experts Ltd, which was then headed by Grin?
shtein, bought shares in SPAG for 500,000 German marks. . . . Then in
July 1995, it took part in another share issue, buying up 13,000 shares for
110 each. . . . In October of that year, again according to
Roth, [Rudolf] Ritter signed off on the sale of 10,000 shares for 140 marks
each to a ?rm called ICI International Consulting Investments. Haberlach
is a director of E. C. Experts and is also under investigation in Hamburg on
allegations of human traf?cking and running a prostitution ring. Haber-
lach?s brother, Roth writes, is married to the former wife of Kumarin. Roth
cites the BundesKriminalAmt (BKA), or German police, as saying it sus?
pects International Consulting Investment to have played a central
role in founding SPAG and its affiliated companies and that through this
company certain people also wielded influence over the chain of money
flows into SPAG. The ?rm Euro?Finanz also appears to have played a simi?
lar role.? In what could be a vital link between the SPAG case and the case
against Ritter for laundering Colombian drug money, Euro?Finanz is also
identi?ed in a Liechtenstein prosecutors? indictment against Ritter, a copy
of which has been obtained by the Moscow Times.? 162 At 1.6 
to the US. dollar, these total share purchases were worth about $1.7 mil?
lion.

In 2000 website proclaimed that the company had been

BLK000272

 

136 KAREN DAWISHA

given the right to be the only foreign investor in the real estate sector in
St. Petersburg that could take the pro?ts from its investments out of the
country (?habilit?e a r?colter des Such a move would
have needed political capital and approval by the board, including Putin.
Even in 2012 the website still maintained that SPAG was the only West?
ern company authorized to invest in real estat?? and development projects
in key strategic areas of St. Petersburg. So if someone wanted to invest in
St. Petersburg and take his pro?ts out of the country, SPAG would be the
ideal vehicle. The investigators charged that deals were put together in
which money from Russian organized crime was commingled with West*
ern money, some of which was also being laundered from illicit activities,
including from Colombia?s Cali cartel. But some of it was legitimate invest?
ment from Western sources impressed with the fact that Putin was on the
company?s advisory board. German bankers were quoted as saying that they
had agreed to work with SPAG in the 19905 and had handled its IPO partly
because Putin was on its advisory board. The spokesman for the head of the
German Baader Bank, which by 2003 owned 30 percent of SPAG, claimed
that it had organized the ?rm?s initial IPO in 1998 because ?we thought it
was good business if there was someone like Putin on the board.? 164

Putin?s good friend and Ozero neighbor Smirnov was involved in every
step of the process. He received contracts signed by Putin; he was one of
the directors of and he was the head of the two subsidiaries of SPAG
in Russia, Znamenskaya and Inform-Future, in both of which Kumarin
was also involved.165 Kumarin and Smirnov, whose Rif?Security is said to
have provided security for the properties of the Ozero Cooperative,166 were
listed as lead developers of two real estate ventures supported by SPAG. The
Tambovskaya Business Center, which became the Inform?Future Business
Center (located on Tambovskaya str., 12), advertised itself as the ?rst busi?
ness center built to Western standards??24 hour security, ?ber optic tele?
phone system, three thousand square meters of rentable
of?ce space and client support.167

The second property being developed by Znamenskaya was the Nevs?
kiy International Center, on Nevskiy Prospect at Vosstaniya Square in a

prime location across from the train station. Documents showed that the

 

Putin in Sr. Petersburg, 1990?1996 13 7

St. Petersburg city government loaned Znamenskaya 1.5 billion rubles to
resettle residents of communal apartments occupying that building, but
when Yakovlev became mayor, he came after Znarnenskaya for not repaying
the loan, leading journalists to conclude that Smirnov had not been obliged
to repay the loan as long as Sobchak and Putin were in of?ce.168 Kumarin
con?rmed that he had worked on the SPAG project and had worked to
relocate the residents, but when he received the monopoly of the sale of
gasoline in St. Petersburg (a monopoly granted by Putin), ?we decided that
we could make more money building gas stations, and I left the project.? 169
The Nevskiy building stood empty for ?fteen years, and yet SPAG com?
pany records show that SPAG continued to transfer funds to Znamenskaya
for reconstruction of the building. Thus between October 1997 and July
2000 documents reproduced by Natalya gazem show that 63.83 million
($35 million) was transferred to Znamenskaya in twenty
payments, over Smirnov?s signature. This was selfvservice in the extreme
in that he was signing for SPAG as a member of the board, authorized by
Putin to vote the city?s shares, and giving money to Znamenskaya, which he
headed, for a project that was not being built. 170

Putin?s price for doing real estate deals generally was that 25 percent had
to go into the city?s coffers for infrastructural and social projects, but there
is no evidence of his seeking any commission for this deal. But since the
city was itself a co?owner, and he had a position on the board, he certainly
did not need to extract a commission as a means to gain access to prof-
its. The BND reports about Putin and SPAG circulated widely. U.S. gov-
ernment analysis of SPAG found clear evidence of Putin?s involvement in
money laundering, and in 2000, according to a Newsweek report, 
of?cials . . . successfully lobbied for Russia to be placed on an international
money-laundering blacklist. A key reason, said a former top U.S. o?i?
cial, was a sheaf of intelligence reports linking Putin to including
reports showing he ?signed important St. Petersburg city documents for the
company?s bene?t.? 171

The Ukrainian president Leonid Kuchma claimed he too was given the
SPAG documents. (One can only speculate about why the END would

spread the good word about Putin at a time when its own investigations

BLK000273

138 KAREN Putin in St. Peters?aurg, 1990?4996 139
were reportedly stalling under political pressure at home as the new Ger? Derkach: Putin?
man chancellor Gerhard Schroder took Kuchma then had to Kuchma: PUtitl-
decide whether to turn them over to Putin, whose security chief, Nikolay Derkach: Yes. There is some really valuable This really is a
was furiously trying to manage the fallout from Putin?s name ?rm, WhiCh - - -
being linked to criminal money-laundering charges in Germany. We know Kuchma: N0, tell me, ShOUid we giVe this to Putin, 0f ShOUid we
all this because Kuchma?s presidential guard famously made audio record? jUSt tell him that we have this material?
ings that implicated Kuchma in many illegal actions, including the death Derkach: Yes, we he?s going to be able to tell where we
of a journalist. But the recordings also reveal interesting details about got the material from.
Putin?s role in SPAG and, more important, the role of his security services Kuchma: say the security services; 1 will say that our security
in handling matters behind the scene. The ?rst conversation, between service has some interesting material.
Kuchma and his security chief Leonid Derkach, took place in Kyiv on Derkach: And we ShOUid say that we got it from GetmanYa and that
June 2, 2000; everything that exists is now in our hands. Otherwise, no
one else has it, yes? Now, I got all the documents about
Derkach: Leonid Danilovich [Kuchma]. We?ve got some interest? PUtil'l prepared to give them to YOU [Putin].
ing material here from the Germans. One of them has Kuchma: Probably, if that?s necessary. I?m not saying that I will per?
been arrested. sonally hand them over. Maybe you?ll give them to Patru?
Kuchma (reading aloud): Ritter, Rudolf Ritter. shev?
Derkach: Yes and about that affair, the drug smuggling. Here are Derkach: NO- 1?11 jUSt - - .when we make a CieCiSiO? we?ll have to
the documents. They gave them all out. Here?s Vova hand them over anyhow because they?ve bought up
Putin, too. all these documents throughout Europe and only the
Kuchma: There?s something about Putin there? remaining ones are in our hands.
Derkach: The Russians have already been buying everything up. Kuchma: Or perhaps I will say that we have documents, genuine
Here are all the documents. We?re the only ones that still facts from Germany. Iwon?t go into details.
have them now. I think that chief] Nikolay Patru? Derkach: Hmm.
shev is coming from the 15th to the 17th. This will give Kuchma: I will say, ?Give your people the order to connect with
him something to work with. This is what we?ll keep. our security service.? And when they get in touch with
They want to shove the whole affair under the carpet.173 you, you say, gave it to the president, damn it. And I
can?t get it from him now.?
The second conversation took place two days later, when Kuchma and Derkach: Good.
Derkach decided to keep the documents, clearly to use as leverage at some Kuchma: We need to play With this one.174

future time:

In July 2001 two of founders, Eugene von Hoffer and Ritter,

Kuchma: The handover should only take place with the signature were indicted in Liechtenstein of money laundering and using shares in

of Patrushev. This really is valuable material, isn?t it?

 

SPAG to scam foreign investors, including Americans?Ritter received

BLK000274

 

140 KAREN DAWISHA

one year probation and von Hoffer eight years on this and an additional
charge. 175 Meanwhile in Russia, Putin named Gref his economic develop?
ment minister and Smirnov head of the Presidential Property Manage?
ment Department and then director general of Tekhsnabeksport (Tenex),
which is responsible for all Russian state exports of goods and services
for the nuclear power industry, including the?U.S.?Russian Megatons to
Megawatts program and the building of the Bushehr nuclear reactor in
Iran.176*

Given the political sensitivity of the investigation, the Germans moved
slowly and cautiously. German newspapers stated that Chancellor Schroder
personally kept Putin informed about the investigation. 178 Three years after
Putin was elected president and his name had disappeared from the com?
pany?s roster, the Germans ?nally raided twenty?seven of?ces and banks
associated with SPAG in Germany alone. Sources in the investigation said
that the raids were ?in connection with people who worked at in
the ?903? suspected of laundering ?tens of millions of euros? for ?one of the
biggest and most powerful? Russian organized crime groups involved in
?numerous crimes, including vehicle smuggling, human traf?cking, alcohol
smuggling, extortion and con?dence trickstering.? 179 Putin?s name did not
appear in the indictments, and Ritter pled guilty on a lesser count. German
observers concluded that as long as Schroder was chancellor, even at one
point calling Putin a ??awless democrat,? 18? Putin would not face another
hostile investigation. 181 Even more, intelligence experts claim that Schroder
handed Putin a BND ?le during his trip to Berlin on February 10, 2003,
containing the results of a BND investigation into the company IWR,
which had been involved in the disappearance of East German Communist
Party funds prior to reuni?cation. They found that Bank Menatep, owned
by Mikhayl Khodorkovskiy, had possibly been involved, giving Putin the

information needed to charge Menatep leaders with money laundering.182

In 2005 Namya gazem came into possession of documents purporting to show that Tenex had
set up a subsidiary in Germany for the purpose of representing Tenex interests in selling nuclear
fuel and nuclear technology but also for the purpose of continuing to launder money.I77

 

 

Putin in St. Petersburg, 1990?1996 1?41

Schroder was made head of the shareholders? committee of Nord Stream
within months of leaving o?ice. Nord Stream was headed by Putin?s long?
time friend, the eX?Stasi of?cer Matthias Warnig. Schroder and former
Italian prime minister Silvio Berlusconi were the only Western leaders
prominently present at Putin?s 2012 inauguration.

The massive SPAG site at 114?6 Nevskiy Prospekt on Vosstaniya Square
was renovated and then sold to the Finnish company Stockmann only in
2005,183 and a luxury mall opened there in 2010. In 2012 website
still insisted that ?the Company is the only Western company authorized to
invest in real estate and development projects in key strategic areas of the
municipality of St. Petersburg, northwestern Russia.? 184 The stock?s volatil?
ity continued, as when, on February 1, 2007, the stock collapsed, plunging
from 412 euros to 44 euros the next day, despite gains in the European
markets. Investors rebelled, calling an emergency general meeting to pre-
vent the board from using company funds to launch a legal defense. 185

As for Putin, his involvement in SPAG was public, and even leaving aside
whether he bene?ted personally from his association, his presence on the
advisory board had the multiple effect of allowing Russian money to ?ow
into SPAG, attracting licit and illicit Western money through the surety of
his association with the company, supporting the provision of properties
for investment, and providing the use of St. Petersburg city funds for the
relocation of residents. He resigned from his position on the board only on
May 23, 2000, well after becoming president. German investigators did

not pursue the link with Putin, and the case against him ?zzled.

Putin and the Petersburg Fuel Company

As with Putin?s connection to SPAG, his involvement in the establishment
of the Petersburg Fuel Company (Peterburgskaya Toplivnaya Kompaniya,
PTK) features his tight circle of collaborators from the mayor?s of?ce, orga?
nized crime, Ozero Cooperative members, and former KGB members.
PTK was licensed by Putin in August 1994 when he was ?rst deputy mayor.

Vladimir Smirnov and Vladimir Kumarin were partners in the company,

BLK000275

J42 KAREN DAWISHA

along with Vadim Glazkov, a Leningrad native who knew Putin from the
KGB and the mayor?s o?ice,186 and Viktor Khmarinf? a St. Petersburg
lawyer who was a friend of Putin and the brother of Putin?s ?rst ?ancee.188
Company records indicate that founding shares were held by twenty?one
different companies and government agencies, including Bank Rossiya,
the insurance company Rus? (which included Ark?diy Krutikhin, the for?
mer head of the property management department of the Leningrad 0515251?
committee, Vladislav Reznik, and Aleksey Aleksandrov?all of whom had
also been involved in the founding in 1991 of Bank Rossiya), and both
the St. Petersburg and Leningrad oblast? committees for property manage?
ment.189

In January 1995 the city signed a series of agreements with PTK giving
it the exclusive right to supply gasoline to the city?s entire ?eet of vehicles,
from ambulances to buses and cars,190 to build a chain of gasoline stations
throughout the city, and to ?participate in the formulation of policies of the
St. Petersburg Mayor?s Of?ce in the area of [gasoline] supply.? 19? Russian
media sources reported that the PTK brought together the city administra?
tion and the Tambov and Malyshev criminal groups.192 Il?ya Traber, who
controlled both the antiquarian market in the city and held a major inter?
est in the St. Petersburg port, also was involved, and the Tambovs? Kuma?
rin returned to Petersburg in early 1996 after being badly wounded in a
turf battle there. It appears this was one area where rival groups ultimately
cooperated for their mutual bene?t, which allowed them to ?x prices,
evade taxation, and skim deliveries,193 against the interests of St. Petersburg
citizens who suffered from higher prices and poorer quality. In this way
the city administration allowed itself to be captured by criminal elements,
presumably as in such cases worldwide, for their mutual bene?t. Thane
Gustafson, whose book Wheel ofFortum provides an extensive study of
Russian oil, summed up the political forces at work in St. Petersburg: ?The
local fuels business was a rich source of off?the-books cash, and therefore
it was quickly penetrated by organized crime, typically with the behind?
the-scenes backing of city of?cials and local law?enforcement agencies.? 194

The Russian investigative reporter Roman Shleynov states:

 

 

Putin in St. Petersburg, 1990?1996 143

The PTK was the nexus of the interests of those described as members
of the Tambov group and the pool of Vladimir Putin?s cronies who
today control the country?s key assets. At the time the PTK was set up
in 1994, the shareholders included Bank Rossiya, whose co?owners
were [Putin?s] long?time cronies, who had founded the Ozero coop?
erative together with him: Yuriy Koval?chuk and Nikolay Shamalov.
Interestingly, Gennadiy Petrov, who has since been arrested in Spain,
was a shareholder of Bank Rossiya in 1998?1999. Another share?
holder in PTK was the Piter Information and Legal Of?ce, in which
Il?ya Traber had a stake. The structure of assets and manage?
ment had changed by 1998. According to the company?s records,
another mate of Putin?s, Vladimir Smirnov (co?founder of the Ozero
cooperative) became chairman of the Board of Directors, while Vlad?

imir Kumarin, who is now under investigation, became a vice presi-

dent 195 

Novaya gazeta?s investigative reporter Roman Anin concluded in 2011,
?Y-?ilthough the city?s Property Management Committee had the biggest
stake in the PTK, if the shares owned through various entities by
Gennadiy Petrov, through various structures together with Vladimir Kuma?
rin (even though Kumarin was not of?cially a shareholder) are aggregated,
they owned the petrol monopoly, which enjoyed serious protection from
the St. Petersburg mayor?s of?ce and Vladimir Putin himself.? 197

This group held wide sway in St. Petersburg while Putin worked there
and after he left. To be sure, it might not have been possible to establish
a more competitive market given the propensity by rival groups to use
violence. It is, however, notable that the city authorities, including Putin,

worked with, strengthened, and ultimately legitimized the crime families

further 5 percent of the PTK went to Viktor Khmarin, Putin?s close associate and friend,
through the company Vita?X. Bigger stakes went to ZAO Petroleum (12 percent), af?liated
with Gennadiy Petrov, and the Baltic Bunker Company (12 percent), which had links with
Petrov, Traber, and Dmitriy Skigin, who was expelled from Monaco in 2000, according to police
of?cials there, for links to the Tambov crime family.196

BLK000276