Leading Russian oligarchs such as aluminum tycoon Oleg Deripaska, Swiss-based oil baron Viktor Vekselberg, and nickel king Vladimir Potanin have all but resigned themselves to the likelihood that President Vladimir Putin will soon decree a re-nationalization of their domestic holdings.
High-level banking and legal sources who have worked with all the major oligarchs since the dissolution of the Soviet Union in 1991 say the overwhelming consensus among oligarchs is that Putin will soon issue an official decree announcing that properties privatized since 1991 be returned to the Russian state.
“Nationalization is not a question of if but when,” one top banker said.
United Company Rusal’s controlling shareholder, Oleg Derispaska, has already set in motion a spin-off of all non-Russian-based assets into a separate company to avoid an upcoming nationalization.
Already sanctioned by the US and the UK, Deripaska is considered to have consistently sought the closest ties with the Kremlin, from marrying Boris Yeltsin’s granddaughter, Polina Yumasheva, to cheerleading Putin’s economic agenda up to the pharaonic, US$50 billion Sochi Olympic Games.
Even the most Western of oligarchs, Viktor Vekselberg, seems set to lose all his Russian assets not only in Russia itself but also in the West, notwithstanding becoming a Swiss citizen and his Renova Group headquarters being discreetly nestled on the ultra-prestigious Klaus Strasse 4 in Zurich.
Vekselberg made his fortune by being the major shareholder of Russian oil group TNK with fellow oligarchs such Len Blavatnik, now a US citizen, and Alfa Bank founder Mikhail Fridman.
Vladimir Potanin, the owner of the world’s largest nickel mining group, Norilsk Nickel, gave an interview to Reuters warning Putin not to go back to 1917 by seizing foreign owned assets as the Bolsheviks did a 100 years ago.
“Potanin knows that Putin has always wanted to see Norilsk Nickel under state control – for the not so small reason of Norilsk’s horrible environmental track record in Siberia,” a source said.
Putin, since taking over the Russian presidency after Boris Yeltsin’s resignation on December 31, 1999, has never hidden his contempt and disdain for Russia’s robber barons, even to the point of publicly humiliating an oligarch for some misdeed or other.
“Putin when he took over the Kremlin was determined to kick out the oligarchs like Boris Berezovsky from controlling the Kremlin as they did under Yeltsin,” an M&A lawyer said.
A younger Vladimir Putin decided to use Klaus Schwab’s first World Economic Forum in Moscow in 2003 to have a Russian oil tycoon, Yukos owner Mikhail Khodorkovsky, arrested under the glare of the Russian and international press.
The planned merger of Yukos and Sibneft with the entry of America’s Exxon, under CEO Rex Tillerson as a minority shareholder, pushed the Moscow Stock Exchange to an all-time historic record high. Now there is talk that the exchange may close for good.
Shortly after the WEF event, Khodorkovsky was arrested for tax evasion and sentenced to nine years in a forced-labor prison, with his sentence extended by another five years before being released into exile in 2013.
The arrest of Khodorkovsky, and his lengthy imprisonment in a harsh gulag, was meant as a clear message and new pact between the Kremlin and the oligarchs: “You may keep your business and billions but if you ever enter politics as did Khodorkovsky, you will end up in the gulag, or worse.”
Putin’s 2003 Separation of Business and Politics pact lasted until the annexation of Crimea in 2014, an action triggered by the Maidan pro-EU protest that ousted the Russophone kleptocratic president Viktor Yanukovych.
For most of the period from 2003 to 2014, the Russian oligarchs knew it was best to keep away from Kremlin politics, but the oligarch barriers of the Kremlin had been breached by arrivistes such as Yevgeny Prigozhin and the sanctioned owner of Geneva-based commodity trading house Gunvor, Gennady Timoshenko.
It is understood by Kremlin watchers that Prigozhin, and possibly Timoshenko, seduced Putin like the czarist Rasputin to rush through an annexation of Crimea rather than pursue financial/diplomatic talks to acquire the peninsula from Ukraine for $50 billion-plus and favorable future oil supply contracts in the same way as the United States bought Alaska from Czar Alexander II in 1867.
The current Ukraine-Russia war seems also driven by this new group of oligarchs who have infiltrated the Kremlin while better-known oligarchs such as Deripaska, Vekselberg, Fridman and Potanin failed to use their unlimited resources to oust these new, and damaging, arrivistes from the seat of Russian power.
It is a good guess that the annexation of Crimea has cost the Russian economy up to $1 trillion and the Ukraine-Russian war will end up costing double that amount and maybe much more.
US Senator Jerry Moran said he agrees with the chairwoman of the House of Representatives Committee on Financial Services, Maxine Waters, and ranking member Patrick McHenry that Congress should institute a regime of secondary sanctions on all those who do business with the Russian oligarchs and their businesses, especially Chinese-based companies.
One idea that is gaining momentum in Congress is drafting legislation requiring US Treasury Secretary Janet Yellen to bar US financial institutions from any transaction with any foreign bank that is not in full adherence to the Foreign Account Tax Compliance Act (FATCA).
Under existing FATCA regulations, all non-US foreign financial institutions (FFIs) must be able to search their records for customers with indicia of a connection to the US and to report the assets and identities of such persons to the US Department of the Treasury.
Therefore, any non-US bank not capable of accepting deposits from US citizens would be barred from doing any transaction with any US financial services company and those creating dividing every foreign banking institution on a white or black list.
Putin has little choice but to nationalize all of Russia’s natural resources and former state-owned companies from the oligarchs, something he has always wished to do since being appointed by Boris Yeltsin as prime minister.
However, one source close to a major oligarch said no one will shed any tears “as they all were nothing more than lottery winners.”
Peter K Semler is the chief executive editor and founder of Capitol Intelligence. Previously, he was the Washington, DC, bureau chief for Mergermarket (Dealreporter/Debtwire) of the Financial Times and headed political and economic coverage of the US House of Representatives and Senate.