Oligarch's arrest deepens fears over Russian economy

Oil Barrels

The arrest of one of Russia's richest men, whose empire spans oil production to the country's largest mobile phone network, could send further shockwaves through an economy already reeling from western sanctions.

Analysts said the moves against Vladimir Yevtushenkov this week looked like a raid on his business by Kremlin-connected forces, and were a sign of an intensifying battle for a "shrinking pie" of resources. Yevtushenkov, Russia's 15th richest businessman with a fortune of around £5.5bn according to Forbes magazine, has been placed under house arrest after allegations of money laundering.

A report in the Izvestiya newspaper said prison officials visited Yevtushenkov's mansion outside Moscow and fitted an electronic bracelet around his ankle. He is banned from leaving his home, speaking with anyone except his lawyers, and using the telephone or internet.

Yevtushenkov's holding company, Sistema, whose board directors include the Labour peer Lord Mandelson, saw its shares slump 38% by Wednesday afternoon. The allegations against the billionaire relate to the purchase of Bashneft, one of the few privately owned oil companies in Russia, in 2009. Sistema also controls MTS, a mobile network operating in Russia and many post-Soviet nations.

There were suggestions that Rosneft, the state-controlled oil company run by Igor Sechin, a close associate of President Vladimir Putin, wants to buy out Bashneft. The arrest brought accusations from the fallen oligarch Mikhail Khodorkovsky, released from prison by Putin last year, that the move was linked to Kremlin interest in Yevtushenkov's oil assets.

Khodorkovsky was arrested in 2003, spent years in jail, and his oil company Yukos was disbanded, much of it snapped up by Rosneft. The company dismissed Khodorkovsky's comments as absurd.

Sergei Aleksashenko, an economist and former deputy finance minister, said there was no political subtext to the decision, but framed it as a simple economic raid in order to snap up the company.

"This is not even a racket, this is simple, undisguised theft," he wrote in a blog post. "The item that the thieves are interested in is there for all to see. An oil company in Russia is too much of an attractive business for those close to power not to get interested in. Who are they in this case? We will soon find out, right at the moment when Bashneft changes its owner. This will happen, I have no doubt."

Aleksashenko said there were two choices for Yevtushenkov: sell up quickly and flee the country, in the mould of the former mobile phone magnate Yevgeny Chichvarkin who now runs a wine shop in London, or go down the path of Khodorkovsky and possibly end up in prison.

Chichvarkin said he believed powerful Kremlin figures were behind the move against Yevtushenkov and expected there would be more to follow.

"Maybe they first made him an offer of 10% of what it's worth and then when he said no they decided to escalate," he said, speaking from London. "It's absolutely clear that the ideal scenario for them is for him to flee and sell all his remaining companies. MTS would be a really juicy prize. He has the choice of fleeing and selling or something much worse."

Alexander Shokhin, the normally cautious head of Russia's largest business union, said the move "looked like Yukos 2.0" and would damage trust in the Russian business climate.

Anatoly Chubais, the head of Russian state-owned nanotechnology agency Rusnano and a major political figure during the 1990s, told Interfax that he did not understand the charges against Yevtushenkov. "What I can understand is that these actions will cause a very serious blow to the Russian business climate, at a time when the Russian economy is balancing on the edge of recession and stagnation," he said.

What will be particularly worrying for Russia's businessmen is that Yevtushenkov, unlike Khodorkovsky, was in no way a political figure. Khodorkovsky was widely regarded as challenging the unwritten rule that Putin imposed on the oligarchs when he took over: stay out of politics and you can keep your fortunes. The Yukos head began to finance opposition political parties and complained about official corruption at Kremlin meetings; his opponents in the Kremlin saw the chance to move against him.

Yevtushenkov worked for the Moscow city government during the collapse of the Soviet Union and in 1993 set up Sistema with a group of partners. Like many oligarchs early in their careers, the business began with the import of computers, as well as selling Russian oil abroad.

Yevtushenkov was known as an ally of Yuri Luzhkov, Moscow's long-standing mayor, who ran the Russian capital between 1992 and 2010, when he was deposed. However, the tycoon did not dabble in politics and was thought of as a purposefully neutral, apolitical figure.

Chichvarkin said it was the latest in a set of cases against businessmen in Russia, starting with Khodorkovsky, and showed that everyone still operating in the country was at risk.

"There have already been so many signals in the past years that it is difficult to think that new signals would work on Russian businessmen, but this certainly shows that however loyal you are, however far from politics you are, if they want to take your business they will, because they are greedy bandits."

In June, in an interview with Russian Forbes magazine, Yevtushenkov himself noted the huge risks involved in dealing with the post-Soviet markets. MTS was forced to write off huge losses in Uzbekistan after several local managers were accused of wrongdoing, in a case that Sistema always claimed was politically motivated. He said, however, there were no markets that could be seen as risk-free in the region.

"When you operate in strategic sectors, you should be certain that the state knows you, is loyal to you, and wants you to be there … because any state can always find a way to put you in your place, however strong you are internationally, and whatever businesses you run."

A spokesperson for Sistema declined to comment on the case.

Powered by Guardian.co.ukThis article was written by Shaun Walker in Moscow, for The Guardian on Wednesday 17th September 2014 17.50 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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