Front Burner - Oligarchs, Putin and Russian power

Episode Date: March 18, 2022

Russia’s elite class of billionaire oligarchs have become major targets for Western sanctions over the war on Ukraine. Last week, Canada announced it was freezing assets and banning business from Russian figures including Roman Abramovich, who has been ordered to sell his Chelsea Football Club in the United Kingdom. The U.K. and European Union have taken similar measures against Abramovich and others, and the U.S. has convened a multilateral task force dedicated to sanctioning these elites. But while oligarchs traditionally wield outsized political influence in Russia, President Vladimir Putin has consolidated power over his decades in leadership. Questions remain about whether Russian billionaires — however incensed by the limits placed on their Western-style lives of excess — can pressure Russian President Vladimir Putin to end the war. Today, Forbes’ John Hyatt uses his experience on the billionaire beat to explain where the oligarchs’ wealth comes from, and what Western pressure on their wallets could mean for Putin.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hello, I'm Jamie Poisson. Data from marine traffic shows oligarch yachts on the move. No self-respecting oligarch exists without a super yacht. What we're seeing now is hightailing it on the high seas.

France is already taking action, seizing one oligarch's yacht docked on the French Riviera. Yachts, real estate, and ill-gotten riches of Putin's inner circle, the oligarchs with wealth parked around the world. And today, we are talking oligarchs. Several countries in the West have sanctioned some of Russia's richest men to try and squeeze the country's president. Nikolai Petrov is a senior researcher at the Chatham House in London. He studies the hidden decision-making process of Putin's regime. Petrov says these sanctions are going to hit a lot of egos. No more. They can, and not only them, but their family members,

And not only them, but their family members can enjoy the life of ordinary Western fat cat. They can hide some pieces of their property, but they cannot enjoy a public life of a rich person. And so it makes them much less comfortable. public life of a rich person. And so it makes them much less comfortable. But what he's less confident about is whether these sanctions will end a war. I would take it as a populist gesture rather than any action aimed to influence Putin. Because over the years, Putin's been consolidating his own power and making it harder for semi-independent players to challenge him. The circle of those who could reach Putin, who could give him advice, who could somehow influence his decision making is shrinking. You'll hear Nikolai pop up again during the show.

I'm joined now, though, by John Hyatt. He's at Forbes on the billionaire beat. I called John to ask how these guys got so rich, what their money has to do with Putin, and what happens now. Hi, John. Thanks so much for joining me. Hi, Jamie. Nice to be with you today. Hi, John. Thanks so much for joining me. Hi, Jamie. Nice to be with you today. When we talk about Russian oligarchs, who are we talking about here? I guess in broad terms, I wonder if you could just define a Russian oligarch for me.

Sure. Really, there are two waves of oligarchs that we've seen emerge over the last few decades. of oligarchs that we've seen emerge over the last few decades. The first wave comes in the Boris Yeltsin years of the 1990s. This is in the aftermath of the Soviet Union's collapse. Russia is quickly privatizing, selling off state-owned assets. And during this period, a handful of well-connected businessmen and entrepreneurs come to hold some very valuable state-owned assets, the likes of metals and mining, oil and gas. Russia is a huge exporter of commodities. So this first wave of oligarchs attained their wealth during these years. But what they produced, by Nemtsov's own admission, is something they call bandit capitalism, the rule of the oligarchs, a few men with fabulous riches concentrated in their hands.

Now, the second wave make their money through their connections to Putin, who gets elected president in 2000 and has ruled Russia since then with a brief stint as prime minister. And so these are friends, allies of Putin from his years in the KGB or his years in the 90s as a politician in St. Petersburg. And so these guys made their money through deals with the Putin government acquiring state-owned assets at bargain prices. They're distinct from the first group in that Putin is their man. I wonder, could you give me an example of one or two from the first wave and from the second wave? Yeah, sure. So the first wave, I think one of the best known ones, he passed away in 2013. His name is Boris Berozovsky. He was sort of an eccentric genius type who had a background in sciences. He

benefited from the Yeltsin years of privatization. This is the greatest Russian baron of them all, Boris Berozovsky, once a brilliant mathematician, now a brilliant billionaire, with control of a huge oil company, of banks, of a television network. And no one knows exactly how he did it. They do know that he became one of Boris Yeltsin's confidants, financed his re business community realized they needed somebody to come in to provide a steady hand as Russia continued to privatize its economy. And so Borowski, along with the likes of Roman Abramovich, owner of Chelsea Football Club very quickly exiled by Putin for being critical of the new regime. And so he's somebody who very quickly fell out of favor and actually died in 2013 under somewhat suspicious circumstances. A murder mystery involving two governments and a Russian oligarch. The victim is this man, Boris Berezovsky. He fled to England after a fallout

with the Russian government. The cause of that fallout, accusing the Kremlin of poisoning a former Russian spy with radioactive material. Let's talk about the new guys, the second wave. Can you give me a couple of names from this second group? So one name that's in particular quite interesting is Yuri Kovalchuk. He is a guy who started making money in the 1990s as a banker in St. Petersburg at the same time that Vladimir Putin was a municipal official

there. They become very close during this period. Kovalechuk's bank, Bank Russia, becomes sort of a funding engine for Putin, helping him broker deals and consolidate his power in St. Petersburg. consolidate his power in St. Petersburg. Once Putin rises to the presidency, Kovalchuk is brought to Moscow, and he becomes sort of a dealmaker under Putin, helping him transfer state-owned assets into Putin's orbit. And so this is a guy who's been referred to as Russia's Rupert Murdoch. Through his holding company, he controls much of broadcast and television media in Russia today. And he's also somebody who is extremely close to Putin. According to the Panama Papers, extremely close to Putin. According to the Panama Papers, he owns a luxurious ski resort in Russia where Putin's daughter was married in 2013. And by Forbes estimates, he is a billionaire, at least pre-Ukraine invasion. So this is a guy who made his money and attained his influence almost entirely through Putin.

And he's sort of emblematic of this second wave of oligarchs who enrich themselves, but also shore up Putin's power. Looking at these two waves, the first wave, I know we were talking about Boris Berzovsky. He's dead now, of course, but you mentioned Roman Abramovich. He's very much alive. Canada imposing sanctions on prominent Russian tycoon Roman Abramovich. We know him best, or many people do, around the world, for his ownership of the Chelsea soccer or football club in London. But he does have business interests right here in Canada as well. In Canada, Abramovich owns 30% of Evraz Steel,

one of Saskatchewan's biggest employers. He is incredibly close to Putin. He is part of the very inner circle. So looking at the first wave and the second wave, how much power do each of these groups have in Putin's Russia comparatively? I think it's really a case by case basis. I think if you're going to kind of generalize in terms of who has power and who doesn't at this stage, it's definitely more of the

second group of Putin's traditional allies. Over the last decade or so, particularly after Russia's annexation of the Crimea region in 2014, Putin has cast an increasingly isolated figure, somebody he's relied especially on the advice of a few close allies, including the likes of Kovalchuk and the Rotenberg brothers, who were also part of that second wave. And so, you know, a lot of these oligarchs who

are being sanctioned today, you know, who have yachts, who have homes in the French Riviera, mansions in London, who sit on boards of nonprofits and museums in the West. It's not clear that a lot of these people still have any influence whatsoever over Putin. Just a few weeks ago, he brought several dozens of them into a meeting and essentially outlined his thinking on Ukraine and dressed them down a little bit. So it's not clear that these guys really have much influence whatsoever over Putin. And yet a lot of them are now being subjected to sanctions. So will these sanctions actually work then? Experts I've been speaking with are of two minds about

this. On the one hand, you know, sanctions against these oligarchs do bring unrest within the circles of power around the Kremlin. And, you know, that unrest could theoretically foment discord. It could lead to, you know, some sort of palace intrigue, perhaps. But on the other hand, you know, some experts that I've been speaking with say that, no, Putin is actually happy to see some of these oligarchs sanctioned. happy to see some of these oligarchs sanctioned. He dropped this in his latest speech this week, right? He basically called them pro-Western traitors. I know that you've heard that theory too. Can you tell me a little bit more about that? Yeah, that's exactly right. He did kind of call them out.

And I believe he said something to the effect of, I don't have any problem with buying estates in France or mansions in Western countries, but I want to see their heart in Russia. I want to see them be Russian in. I want to see them, you know, be Russian in a way that they haven't been. So I think, you know, rage against Russian oligarchs has long been an undercurrent within the body politic of Russia. I mean, inequality is extraordinary in Russia. And so I think to the extent that Putin can leverage

Western sanctions against oligarchs as part of his own internal politicking, I think that behooves him. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empower empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked

to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income. That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Nikolai Petrov told us this could actually bring some of the ol, uh, obedience to Putin and becoming somebody of renown in the West. Uh, and, you know, recently he stepped down from, uh, boards of Western cultural institutions that he was a part of. Uh, and, you know, his business interests are in Russia, right? Like the, the mining empire that he oversees is based in Russia.

He's an interesting case, actually, because he has not been sanctioned yet. So there is some discussion about, you know, why hasn't somebody of his stature yet faced sanctions? Yeah, why? Why wouldn't he be facing sanctions at this point? It's a question that a lot of people are asking, not just him, but others too. I mean, there are a lot of Russian oligarchs who made their money in corrupt fashion, who are known entities to US and European Union law enforcement, who have not yet appeared on sanctions lists. I mean, as of today, March 17th, about 20 Russian oligarchs, billionaire oligarchs have been sanctioned by the US, UK or EU. And, you know, of course, there are dozens more

who made their money through corrupt dealings with Putin and who are not on sanctions list. So, you know, there's there are different opinions about why this is. Some people, some sanctions experts I've spoken with have said that officials are trying to create conflict between the oligarchs as a way to disrupt powers that be in Russia. You know, other people say that, you know, in the case of somebody like Vladimir Putin, you know, he controls the world's largest processor of refined nickel. So, you know, if you go after somebody like him, you know, it could cause even more havoc than we've already seen in global commodities markets.

The theory you mentioned that maybe they're trying to play oligarchs off each other is an interesting one. The idea here is maybe one oligarch will wonder why the other one hasn't been sanctioned. And maybe there will be suspicions that they're working with the West or something like that. Sort of like high-level geopolitical chess here, head games? Yeah, absolutely. What's interesting is that in a way that's kind of turning Putin's own strategy on its head, if that is happening. We saw in 2003 when Putin arrested then Russia's richest man, the oligarch Mikhail Khodorkovsky. In a very brazen move, he

had Khodorkovsky arrested. This was a message to the other oligarchs, right? This was Putin saying, you can keep your wealth, but you don't go against me. It's something we've seen throughout Putin's reign uh he's compelled oligarchs to sell assets back to the state uh which he's then dealt out to his own cronies Putin is somebody who views his country's business people as a means to an end. And so the idea that, you know, Western authorities now might be trying to do the same thing, I think is definitely not beyond the realm of possibility to create political strife within Russia. Some of these guys are, some of these oligarchs are trying to show the West that they're the good guy, right? And I wonder if you could just talk to me a little bit about that, why they would be trying to align themselves with the countries who are sanctioning them right now.

Mm-hmm. Well, in some cases, these are Russian businessmen who have lived in the West for decades. They send their kids to private schools in the West. They belong to boards of museums and cultural institutions in the West. And many of them have divested themselves of their Russian holdings and are now invested in Western companies and Western shares. You look at somebody like Mikhail Friedman. He's a London-based banker who made his money in the 90s during the Yeltsin years, but really hasn't been active in Russian business or Russian politics for several decades. And he's somebody who's been sanctioned by the UK and EU.

Just today, he came out in a news article decrying the sanctions against him saying he has no influence over Putin. He has no ties to the Kremlin anymore, that sanctions against them are missing the point and are failing to understand who actually controls the levers of power in Russia. Another one maybe worth noting is Abramovich, who we talked about, who's donating the proceeds of Chelsea to Ukrainian war victims. Yeah, you know, those comments in particular, I think, struck a chord, because I believe it was The Guardian, which reported not long after he made that vow, that said donations may also be going to Russian troops who were injured in the war. So, you know, it's quite fitting that Abramovich would try to have it both ways with that statement,

because he's an oligarch who essentially has been having it both ways for decades. He sold his stake in the oil giant Sibneft back to the Russian government. And I believe it was 2013. He pocketed over $10 billion for that sale. But he's also somebody, you know, in addition to being close with the Kremlin and close with Putin, he's somebody who has gone out of his way to foster good relations with the West. But that's all falling apart in

just a matter of weeks. And I guess my other question is, like, do we know? I mean, for sure, we're seeing all these images of yachts being seized all over the world. But like, do we know how much damage these sanctions are actually doing to to any of these guys financially i mean i've heard transparency activists like james cohen here in canada say that as long as these guys can just move their money around uh various different shell companies like it's not it's not really going to have an impact a sanctioned oligarch unless they're incredibly lazy doesn't own a 10 million dollar mansion or a valuable piece of art or something else like that in Canada in their name. It's probably owned by something like Canada

Limited Partnership 1234, which in turn is owned by Alberta Limited Partnership 5678. And you might even have trusts layered on top of that, which makes it even more complicated. So the most you have to hope is like some oligarchs, they get lazy and wind up taking photos of themselves at their property and post it on Instagram. I think that's a fair take. I mean, I think you look at it. It's important to bear in mind, too, that, you know, these oligarchs are extremely wealthy, right? So they might have yachts worth $500 million and estates worth hundreds of million dollars. And sure, you might, you know, freeze those or prevent the oligarchs from accessing those. And they'll still have,

you know, a few billion in cash. So I think, you know, there is a concern there that, you know, So I think, you know, there is a concern there that, you know, sanctioning doesn't have the punitive effect that authorities might have in mind. But I think it would be like, sorry, it'd be like someone taking like 10 bucks from you and I. Yeah, exactly. It would just like kind of suck. Exactly. of suck exactly but i think you know also one thing i've learned about you know billionaires uh while while covering them is that they care about all of their money right they care about everything they have so you know in the mindset of of billionaires and oligarchs you take away half their wealth that's gonna hurt them personally they take pride in their wealth

they take pride in the assets they have. So while they might still be billionaires and still have access to capital, these sanctions are causing disruption and likely anger in the oligarch rank. John, this is great. Thank you so much for this. Thank you, Jamie. All right, that is all for this week. Front Burner is brought to you by CBC News and CBC Podcasts. The show is produced this week by Imogen Burchard, Ali James, Katie Toth, Simi Bassey, Derek Vanderwyk, and Samantha McNulty. Our sound design was by Mackenzie For more CBC Podcasts, go to cbc.ca slash podcasts.