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Rouble-makers (part two)

The concluding part of our article on how some capitalists originally accumulated their capital.

Roman Abramovich grew up poor: both his parents died when he was young, and he was brought up by an uncle. He was nothing out of the ordinary at school or in the army where, after two years, he was still a private; though as a soldier he is said to have sold contraband petrol to the officers of his unit. He married young and “married well” as the phrase is, because his wife’s parents gave the newlyweds a wedding present of 2000 roubles, worth at the time about £1000 (which was more valuable then than now). With this starting capital he set himself up as a street trader, selling plastic ducks. Abramovich’s present fortune is about ten thousand million pounds, so one’s first thought is that he must have sold a lot of them. Reports suggest that the ducks (which could be relied on not to quack) were smuggled in, thus avoiding the due taxes and increasing the resulting profits. (All this private buying and selling was then illegal, of course.)

Abramovich then went into trading automobile parts, retreaded tyres, other plastic toys and commodities generally. But the significant fact is that Abramovich was twenty when Gorbachev came to power, and small private businesses became tolerated. So Abramovich began making plastic dolls.  This, in our society, means that he was able to organize other people into making plastic dolls which he then sold, keeping the surplus value. Soon Abramovich was forming and liquidating numerous companies: he was into bodyguard recruitment, pig farms, and trading in oil and oil products. As one of the first out of the starting gates into private merchandising he was now making a lot of money – though some press reports claim it was not always along completely legal channels. There were occasional setbacks. In 1992 a goods train arrived in Moscow carrying diesel worth 3.8 million roubles. Abramovich met it and gave instructions for a different destination. He was arrested, charged with stealing state property and held in prison. But the people who got the oil duly paid for it, so Abramovich got out of jail and it was all forgotten.

Abramovich got to know Pyotr Aven, businessman and politician, who was in 1992 the Minister for External Economic Relations and, in 1994, the President of the Alfa Bank, one of Russia’s largest. On Aven’s yacht Abramovich met an even greater personage, Boris Berezovsky, who was in Yeltsin’s inner circle.

Abramovich made sure he became close to Berezovsky: their families even holidayed together. Berezovsky provided Abramovich with what is known in Russia as “krysha”, literally meaning roof: that is, with contacts, with political protection and, indeed, with a connection to the very centre of Russia’s government – to Yeltsin and Yeltsin’s friends. Berezovsky became Abramovich’s “godfather”.

Abramovich paid for this personal line to the centre of power with vast amounts of money: according to Abramovich on the witness stand in the current case, he paid Berezovsky during the 1990s no less than 2.5 billion dollars – well over a billion pounds (Times, 11 November). It was money well spent, since the 1990s was the decade when Yeltsin was disposing of Russia’s state industries. After cosying up to Berezovsky, Abramovich now cosied up to Yeltsin and his entourage, including his daughter Tatyana Dyachenko and his security chief Alexander Korzhakov. Soon he had an apartment in the Kremlin and was proving the truth of the old saying – it’s who you know that counts.

Yeltsin had come to power in 1991 when, like many other politicians, he was going to make everything fine for everybody. A year or two later (like many other politicians) he was despised as a failure. In 1996 he had to stand for re-election. He desperately needed money to finance a political come-back. Various auctions were held of state assets. Abramovich wanted to get hold of Russia’s oil industry – refineries, exploration enterprises, marketing company, everything – in a new entity called Sibneft. Abramovich’s witness statement to the court says, “Mr Berezovsky helped him acquire Sibneft in one of several rigged government auctions. These privatizations . . . allowed a group of oligarchs to gain control of vast state assets relatively cheaply in return for supporting Boris Yeltsin’s re-election campaign” (Times, 29 October). These are Abramovich’s own words, very carefully considered – telling untruths in a court case would rank as perjury, so he must have felt sure of what he wrote down. Since another Russian company, Gazprom, bought 73% of Sibneft in 2005 for 13.1 billion dollars, which would value the whole of Sibneft at 17.9 billion dollars, or at least a hundred times as much as Abramovich paid for it, one can agree that it was bought “relatively cheaply” and that the government auction must indeed, to use Abramovich’s word, have been “rigged”. In court, Berezovsky’s lawyer said that “an oil refinery manager who had opposed the deal that underpinned Mr Abramovich’s initial fortune had ‘died in difficult circumstances . . . he drowned’. Tantalizingly, no further detail was given” (Times, 2 November).

Abramovich moved on to consider the Russian aluminium industry. He said in his witness statement: “Prior to 2000, the Russian aluminium industry was disorganized, its assets were split between a number of different owners, and some of the players in the industry resorted to forceful methods and violence to protect their interests.” So he “was not keen to get involved in the industry, given its violent and unstable history. Criminal groups were fighting fierce battles for control of the profits generated . . . and dozens of businessmen had been killed in this struggle for control.” In fact, “someone was murdered ‘every three days’ at that time”. This period became known as “the aluminium wars.” However, another oligarch, Badri Patarkatsishvili, persuaded Abramovich to go for it, in return for the small consideration of half a billion dollars for his help as an intermediary. (Patarkatsishvili unfortunately died suddenly at his Surrey mansion in 2008, aged only 52, the very day after sending an urgent message to Abramovich saying, “he had something very alarming to tell me, and asking me to meet him urgently.” They decided it must have been a heart attack.) Abramovich, in alliance with another oligarch, Oleg Deripaska, successfully acquired Russia’s aluminium industry. Subsequently he extended his holdings in other Russian industries.

Deripaska, of course, was the man who hosted a holiday party on his luxury yacht in the eastern Mediterranean in 2008. The guests included Nathaniel Rothschild, George Osborne and Peter Mandelson. Mandelson was then the EU Trade Commissioner, and the EU had reduced aluminium tariffs, thus benefiting Deripaska. Some commentators alleged that it was inappropriate for Mandelson to accept Deripaska’s hospitality, but probably they were annoyed at not having been invited to sunbathe on the yacht. Others claimed that Osborne tried to get Deripaska to contribute to Conservative Party funds, but no doubt it was all a misunderstanding.

Abramovich insists he has earned his success. His wealth, he said, he had “generated through hard work and by taking risks associated with doing business in Russia”. It is true that some of those hopefuls who started out like Abramovich with the same aim of taking over some of Russia’s state industries have now retired to the nearest cemetery. Some of the men who took “the risks associated with doing business in Russia” are no longer with us; they have died of “lead poisoning”, to use the old euphemism, unless it was suspected that more exotic means of settling business disputes had been employed. And it is certainly true that all wealth is generated through “hard work”; it is only necessary to add that the person doing the hard work and the person getting the wealth are not always identical.

Abramovich’s evidence is currently causing raised eyebrows in London’s High Court, as he explains that he often gave out inaccurate information to the public and to potential shareholders, about who really owned his companies (“mainly for reasons of security”), that he signed important business documents which carried an intentionally incorrect date and that some people who signed documents as acquiring shares were not in fact acquiring shares at all – all of which would be offences under English company law. “If backdating documents is something that is not very ethical, then perhaps we can be accused of that. This practice existed in Russia and for sure we have done it,” said Abramovich. “If backdating this agreement is a sham, then so be it,” he told the court. “This is a uniquely Russian story,” Abramovich asserted. Other documents recording purchases, Abramovich told the court, contained the names of people who were supposedly purchasers and recipients of shares but in fact were nothing of the kind. “It is a Russian tradition”, Abramovich told the (somewhat surprised) court. Indeed, some of the state companies apparently were kind enough to give important assistance to the oligarchs who were bidding to take them over. Private Eye (11 November) said: “the puzzled judge did try but failed to get Abramovich to explain exactly why state-owned companies would assist in their own purchase without any written agreement. Another ‘uniquely Russian story’.”

Abramovich is now very close to Putin. He apparently interviewed politicians to see if they were suitable candidates for Putin’s cabinet. Abramovich has become enormously rich and, not surprisingly, has a squad of forty security officers to look after his personal safety. According to the Daily Mail earlier this year, he has four homes in Russia, two in the U.S., and three in France. In England he has six flats in Knightsbridge, and the Fyning Hall estate in West Sussex (not to mention a Premier League football team). He also owns the Eclipse, a luxury yacht 560 feet long, which has two swimming pools, two helicopter landing pads, several subsidiary boats or tenders and a submarine. According to reports in the papers, he has several other luxury yachts. He also has a Boeing 767, an Airbus 340, several helicopters, and ten luxury cars – a Porsche, a Rolls, a Ferrari and so on. However, he told the court that he had been “astonished by Mr Berezovsky’s spending habits when they met in 1994, and that he did not want a similar ‘extravagant lifestyle’” (Times, 2 November). So Berezovsky must have been living it up.

In the 2011 Forbes list of the world’s richest men, Abramovich was only the ninth richest man in Russia (where there are now no fewer than 114 dollar billionaires). So there are eight Russians who probably wonder how Abramovich can make do with so few houses, cars, luxury yachts and so on.
In the present clash of the tycoons, Berezovsky claims that the vast amounts of money Abramovich paid him were dividends from Berezovsky’s share of the companies acquired from the state in the 1990s, while Abramovich says they were nothing more than payments for Berezovsky’s services in keeping Abramovich’s name before Yeltsin as an appropriate man when Yeltsin wanted to make more money out of state assets. These matters will not be easy to decide when whole industries changed hands with little more than a nod and a wink, or in transactions recorded at best in documents which were unfortunately false as to date, and as to personnel, and as to share-holdings. (“It is a Russian tradition.”)

Several other cases involving the Russian oligarchs are down for early hearings in London. But surely any unbiased person who reads the reports of the current case must, on the facts revealed there alone, abandon any support of capitalism. The courts and the judges and the lawyers can argue till the cows come home about whether one oligarch has done the dirty on another, or whether one oligarch ought to have a few billion more and another oligarch a few billion less. It all misses the essential point completely. What these two oligarchs are arguing about is not about creating industry: the Russian oil industry existed and still exists; the Russian aluminium industry existed and still exists. Nothing in all these nefarious dealings in Moscow altered the basic facts of those industries. All this laborious and expensive squabbling in London is concerned with one thing only: which extremely rich person shall have more of the surplus value produced by these industries, and which shall have less. As Abramovich himself said in the courtroom about the Russian aluminium industry, “criminal groups were fighting fierce battles for control of the profits generated”. Not a single voice has been heard, either in the courtroom or in the lengthy reports of the proceedings in the papers, asking the essential question: why should the Russian oil-workers and the Russian aluminium-workers go to their work every day and produce oil and aluminium, and have so much of their hard work creamed off to in order to provide disgustingly extravagant luxury for people who probably couldn’t even explain what it is the oil-workers and the aluminium-workers do.

But then, that is what capitalism, whether the state variety or the private variety, is all about.