There was no intrigue in the outcome of the Russian presidential election that took place on March 18. Vladimir Putin won with a reported 76.69 percent of the vote; in absolute numbers, he received 55 million votes, equivalent to roughly one third of Russia’s population. And although RFE/RL estimates the number of fraudulent ballots cast for Putin at 10 million, this is considered only the fourth worst electoral fraud rate in Russia’s recent history, after the presidential election in 2012 and the Duma elections in 2011 and 2016.
The only real question mark looming over this election has been who will be Prime Minister thereafter. According to The Bell, a recent op-ed published by former Finance Minister Alexey Kudrin counts as the unofficial start of the fight for the position.
Kudrin’s piece in Kommersant is entitled “Three Goals For Two Years.” In it, the former minister says that the Russian government has two years to implement reforms before the new Duma election campaign kicks off in 2020. Kudrin calls for the main goal to be the reform of Russia’s governing model: The one that exists today, he says, is not capable of reaching the country’s economic goals.
However, the fact that Alexey Kudrin has been striving to return to the government, after he was kicked out by then-President Medvedev, doesn’t mean that Putin’s regime is seriously contemplating any liberal or semi-liberal reforms. The vote shares earned by the so-called opposition representative Ksenia Sobchak (1.68 percent) and the perennial opposition failure Grigory Yavlinsky (1.05 percent) speak volumes: Liberal ideas are represented by a marginal, easily dismissible number of Russians.
But if these numbers, and Kudrin’s diagnosis for liberal reforms, don’t tell us much about the Putin regime’s agenda in the next six years, a recent major arrest does provide a few clues.
On the night of March 30, the Magomedov brothers—Ziyavudin, worth $1.4 billion, and Magomed, the former Russian Senator worth $400 million—were arrested by the FSB.
Soon after, an investigator’s order on criminal charges against the Magomedovs was leaked to the press. The details contained therein were notable on two counts. First of all, the investigator is Lieutenant Colonel Nikolay Budilo, who is sanctioned under the Magnitsky Act. Second, the charges themselves are written in a way that staggers the imagination.
The founders and owners of the Summa Group investment holding, Ziyavudin and Magomed Magomedov, are charged with creating a criminal syndicate under its guise. The charges look more like an excerpt from a court’s decision than an investigator’s order. Specifically, the charges say that the criminal syndicate “is characterized by a hierarchal structure, permanent members, clear assignment of criminal functions among its members…and specializes in the systematic committing of felonies, in particular, stealing funds in large amounts from business entities, federal and regional budgets.” The Magomedovs are charged with stealing and embezzling 2.5 billion rubles ($40 million at the current exchange rate), including while constructing a stadium for the 2018 World Cup in Kaliningrad.
Given the severity of the order, it was no surprise that the Magomedovs were not allowed house arrest. One day after their detention, a Moscow court put them in jail for two months. The bail request was predictably rejected, even though the Magomedovs offered the exact sum of money they are charged with stealing.
A little background is in order. Born in the Republic of Dagestan, Ziyavudin Magomedov became friends with Arkady Dvorkovich, the current Deputy Prime Minister of Russia, while studying in Moscow in the 1990s. Dvorkovich has always been considered Medvedev’s man, and Ziyavudin Magomedov’s rapid financial growth occurred during Medvedev’s presidency as well. Ziya made his first big money on state contracts for the construction of the Eastern Siberia-Pacific Ocean (ESPO) pipeline. That notoriously corrupt project helped make the career of Alexey Navalny, the now-famous opposition leader who published an investigation into it in 2010. According to Navalny, $4 billion were stolen through ESPO. The main contractor on the project was Transneft, the state-owned monopolist for pipelines in Russia.
In 2011 Summa and Transneft together bought 50.1 percent of the largest Russian seaport in Novorossiysk, NMTP.
Ziya’s position was jeopardized when his cousin Ahmed Bilalov, the head of the Russian Olympic Committee, was fired in 2013 and charged with financial crimes. The same fate was suffered by Bilalov’s brother, Magomed Bilalov, who also worked on the 2014 Sochi Olympics. The Bilalovs fled Russia and have not returned since.
Despite the peril, Ziya Magomedov found a way to reposition himself and stay in the Kremlin’s good graces. He became a sponsor of one of Vladimir Putin’s favorite organizations, Russia’s Night Hockey League (NHL), while his brother Magomed became its president. The NHL occasionally allows the Russian President to play in its games to entertain himself—where he miraculously manages to score six or seven goal every time he plays, as the goalkeepers literally part before the gifted athlete.
It is hard to say exactly what happened to the Magomedovs and who is behind their arrest. Some experts assume this to be an attack on Dvorkovich, and therefore Medvedev, which sounds plausible considering Putin has yet to appoint a new Prime Minister. The only meaning of this role is to be entirely loyal to Vladimir Putin, and, to become acting President if anything should happen to him. For his part, Dmitry Medvedev proved his unwavering loyalty to Putin by guarding the presidency for the latter in 2012.
On the other hand, there have been increasing rumors that Rosneft CEO Igor Sechin hopes for the job. Whether or not this is his primary goal, the theory that Sechin stands behind Magomedov’s arrest is plausible. The case was developed by the FSB’s Ivan Tkachev, the head of Directorate K, which oversees the financial sector in Russia. Directorate K has been the subject of a deadly power struggle within the FSB in recent years, as I have previously covered.
Tkachev used to head the Sixth Service of the FSB, which was created by Igor Sechin and was known as “Sechin’s SWAT.” Tkachev also oversaw the criminal case against Economic Development Minister Alexey Ulukaev, who was sentenced to eight years in prison for bribery. The sentence is being appealed.
Tkachev’s involvement points to Igor Sechin being the mastermind of Magomedov’s arrest. However, it might not mean that Sechin’s goal was the Prime Minister post. It’s possible that Rosneft has a financial interest in some of Summa’s assets—for instance, the above-mentioned NMTP or energy entities.
An insider familiar with the matter says that Transneft CEO Nikolai Tokarev is soon to be replaced, which the Russian press has likewise been predicting of late. Tokarev has a longstanding conflict with Sechin. Rosneft transports its oil through Transneft’s pipelines, and Sechin doesn’t like the amount of transportation losses Transneft claims.
Nor does Igor Sechin like to pay tariffs under the new currency exchange rates when transporting Rosneft’s oil through NMTP, controlled by Transneft and Summa. This was where Ziya previously picked a fight with Sechin. The amount of payment at stake in the dispute was a mere $1 million. Rosneft’s CEO filed a claim to the anti-monopoly regulator and got a decision to fine NMTP for 10 billion rubles ($166 million). NMTP disputed the fine in court in February. Days later, the Tax Revenue Service claimed 9.6 billion rubles of underpaid taxes from NMTP.
Rosneft is an extremely mismanaged company that bears giant losses because of Sechin’s poor management. To have his own man head Transneft would be a dream come true for Igor Sechin—so Magomedov’s arrest may well be part of this plot.
Whether it’s motivated by a commercial dispute or a fight for the Prime Minister post, the Magomedovs’ arrest is a remarkable example of how Putin’s regime now sees and treats private business. The charges against Summa’s owners are the first of their kind: From now, on any commercial activity can simply be discredited as an organized crime racket. Unfortunately, this is a trend that seems unlikely to go away, given the government’s recent treatment of private business. Three months ago, I explained how the Russian government was systematically destroying private banks and expropriating their assets. Less than a month later, there followed an unexplained transfer of control over the second-largest food retailer, Magnit, from its owner to the state-owned VTB Bank.
Another remarkable feature of this arrest is how it shows that being on personally friendly terms with Vladimir Putin, and even sponsoring a personal pastime of his like the Night Hockey League, no longer suffices to guarantee immunity. The arrest of Magomed Magomedov, who has always been more politically connected than his brother, made it clear that there is no one left who could save the brothers. Jailed with no chance of bail, the Magomedovs were physically restricted from reaching out to political heavyweights to intervene.1
Most frightening of all were the comments of Kremlin Spokesman Dmitry Peskov on the Magomedovs, who share a history with Putin’s press secretary. When Peskov got married in 2015, Alexey Navalny claims the newlyweds spent their honeymoon on Ziya Magomedov’s yacht in Italy’s Sardinia. Peskov officially denied spending time on the boat, saying he stayed in a hotel in Sardinia. However, his daughter posted selfies and comments from the yacht at the time of the honeymoon.
Perhaps, as a newly born joke has it, Peskov will now be able to enjoy Magomedov’s yacht in his absence. In any case, Dmitry Peskov apparently no longer associates himself with the businessmen. The Kremlin Spokesman’s comments on the case amounted to a thinly veiled warning to private business: “This is not some one-time action. There is a deliberate, severe policy on monitoring the spending of budget funds.”
Peskov should be praised for such honesty. Every Russian businessman, except for the closest circle of Vladimir Putin consisting primarily of the Ozero cooperative members—the Kovalchuks, the Rotenbergs, and Timchenko—should stay tuned.
1 The Magomedovs certainly once had friends in high places: in fact, the President of Summa from 2011 to 2014 was Aleksandr Vinokurov, the son-in-law of Russian Foreign Minister Sergey Lavrov. He has not been touched by the investigation in any way, strangely enough, even though the investigator alleges that Summa started its criminal activity no later than 2010.