Last week saw a whole series of publications about the so-called Paradise Papers. It was another leak of documents from an offshore incorporation firm, revealing the real owners of a large number of offshore companies, along with the various operations and deals those offshore entities were carrying out.
An endless number of articles came out. The Queen of England is in there, Bono from U2 is in there, and plenty of our own people too. I got dozens of messages like: “Alexei, I just don’t have the strength or desire to read all of it. Tell us what matters most for us. Is there anything in there that is important for Russian citizens and that they ought to know?”
There is. And it’s the story of how Alisher Usmanov used our money to buy Facebook. Not for us, of course—for himself.
To my great surprise, this main story—the truly crucial one about a gigantic fraud—is almost nowhere to be found in one place. To understand it in detail, you have to read a bit in The New York Times, then go through the ICIJ consortium website in detail, then a bit in The Guardian, then in Novaya Gazeta, then on the BBC website, then go back to The New York Times to look at the infographic—and even then, questions remain.
But at ACF (the Anti-Corruption Foundation), we have a special relationship with Alisher Burkhanovich, so we decided to dig into this properly. We reread everything various outlets had written on the subject and assembled it into one coherent story. Read on—and watch the video too, of course.
I’ll admit that as I familiarized myself with Usmanov’s new fraud scheme, I could barely contain my rage. We are all quite familiar with Usmanov’s old tricks for taking over metallurgical assets, but that all seemed like business from years past, the last echoes of the privatization era. Now, though, as the media and PR people keep droning on, Usmanov is a “new generation” oligarch. Now it’s not mining and processing plants or metallurgy for him—it’s California startups and trendy investments in Facebook, Uber, Airbnb, and the like.
It really can create the impression that Usmanov turned over a new leaf. That he “laundered” the money made from illegally grabbed mining and processing plants and started his life as an investor from scratch. And indeed, what does Facebook have to do with the Lebedinsky GOK (a major iron ore mining and processing plant)? Surely Usmanov couldn’t pull the same tricks in Silicon Valley that he did with Metalloinvest. Who would he be giving country houses to there in exchange for protection? Obama? Governor Schwarzenegger?
As it turns out, he could. He didn’t give houses to anyone there, of course—except Medvedev—but the scheme Usmanov used to make enormous money from selling Facebook shares is one we know very well. It is no different at all from how he bought up mining and processing plants for Metalloinvest. It’s practically a carbon copy. Only this time not in Gubkin or Stary Oskol, but in California.
So.
There is the state gas monopoly Gazprom. Our national treasure, right?
Then there is its subsidiary, Gazprominvestholding, headed by Alisher Usmanov since 2000. Formally, this company is supposed to handle Gazprom’s investment projects, the recovery of Gazprom assets, pipelines, and so on. They do in fact do that, but at the same time Usmanov uses this state-controlled structure for his personal purposes as well. For example, it was Gazprominvestholding that bought up metallurgical assets which, once enough had been assembled, were then sold to Usmanov himself. But that’s by the way.
So here’s what happened. Gazprominvest issued loans totaling almost ONE BILLION dollars to a murky offshore company called Kanton, whose ownership was unclear. And the loan was so large that the state company effectively obtained full control over the offshore entity until the money was repaid.
What is wrong here? Everything is ALREADY wrong here. First of all, why on earth is a state company dealing with Gazprom projects handing over such enormous sums to some fly-by-night outfit from either Belize or the British Virgin Islands? And with the stated purpose of “general corporate purposes,” no less?
Second, if you look closely, this fly-by-night outfit is run by a certain Leon Semenenko.
He is a longtime Usmanov associate. In 2004, Semenenko described himself as Usmanov’s assistant and commented on his deals; in 2013, he described himself as his adviser at Metalloinvest and bought a bank from him. And quite recently, Semenenko gave explanations to FIFA in an inquiry into a possible conflict of interest involving Usmanov. So what we have is Usmanov ordering a loan to be issued to a company VERY CLOSELY connected to himself—to the company of his closest partner and adviser.
Let’s move on. This Kanton, through Yuri Milner’s company, buys Facebook shares. Why Milner specifically? I’ll explain. To a conventional “Western” client, there is a world of difference between the oligarchs Usmanov and Milner. At roughly the same time that Usmanov was sitting in an Uzbek prison (in the video I misspoke and said “at exactly the same time”), Milner was studying physics and heading off to one of America’s most prestigious business schools. Milner lives in Silicon Valley, visits Zuckerberg, and has spent years building the image of a respectable investor.
After a while, the hype begins: Facebook is preparing for its IPO. The forecasts are good; the media, analysts, and bankers are predicting huge success. It would seem that Gazprominvestholding is about to make a very nice profit. After all, shares usually rise sharply in price at such a moment, and they can be sold very profitably.
And that is exactly what happens. Two months later, Kanton—whose freshly acquired Facebook shares are, as I already said, effectively under Gazprominvestholding’s control because of the gigantic loan—SELLS them. You won’t believe to whom. To Alisher Burkhanovich Usmanov’s personal company. It is called Epion.
I understand that this story may seem confusing, so here is the scheme for you. Step by step.
As you can see, Alisher Burkhanovich, in his various roles, controls every link in this scheme.
And then Usmanov himself, now with no investment risk whatsoever, waits literally one month and, on the eve of the public offering, sells those shares for twice the price, making an enormous amount of money.
And Gazprom—and all of us—earned nothing. It turns out that we simply financed someone else’s great deal with our money. If nothing had come of it, if Facebook had not taken off, the losses would have been ours. But it did take off, and Usmanov took the profit for himself.
That is the essence of the scheme.
There are a few more interesting details.
The American media are tearing their hair out and crying, “How, how could this have happened? How did we fail to notice bloody Kremlin money right in the heart of Silicon Valley?” It’s a very simple question, and there is nothing surprising about it. First, the deal was completely shielded by the name of Milner, a relatively respectable investor even by Western standards. I am sure Milner also made excellent money from this scam, but I fear this story may cost him that very reputation as a “respectable” investor. Second, Usmanov, according to the BBC, specifically bought the incorporation firm Bridgewaters, which handled this deal. In other words, Usmanov controlled exactly the link that was supposed to verify the sources of funds, the names of the beneficiaries, the terms of the deals, and all the rest. Very convenient.
A far more interesting question—one over which the Russian media, for some reason, are not tearing their hair out—is this: who exactly on the Gazprom and government side approved and authorized this deal? We are talking about a one-billion-dollar loan, let me remind you. Alexei Miller, was it you? Or perhaps you, Dmitry Anatolyevich?
How do you feel, in general, about the fact that Usmanov—a state official, formally speaking—used state money to buy Facebook for HIMSELF? I would be very interested to hear Dmitry Anatolyevich’s thoughts on the fact that Gazprom could have earned a couple of billion dollars, but Usmanov earned them instead. Or is it just: the loan was repaid, so thanks for that? Or perhaps Usmanov does not consider it necessary to keep Medvedev informed? He didn’t give him that country house for nothing.
And in conclusion, let me say this. Every time you hear or read about the genius investor, the incredible mind and instinct, the “new generation” oligarch Usmanov—you can safely laugh with contempt and shout, “Lies!” Usmanov is absolutely nothing as a businessman, nothing at all. The only tool Usmanov has is not business instinct, but unlimited access to Gazprom’s money. He did not “earn” any of this himself. His greatest entrepreneurial success was a plastic bag manufacturing business in the late 1980s. Because that appears to be the only business he ever had that was not built on our money.