Russian oligarch

Russian oligarchs are business oligarchs of the former Soviet republics who rapidly accumulated wealth during the era of Russian privatization in the aftermath of the dissolution of the Soviet Union in the 1990s. The failing Soviet state left the ownership of state assets contested, which allowed for informal deals with former USSR officials (mostly in Russia and Ukraine) as a means to acquire state property. Historian Edward L. Keenan has drawn a comparison between the current Russian phenomenon of oligarchs and the system of powerful boyars which emerged in late-Medieval Muscovy.[1]

The first modern Russian oligarchs emerged as business-sector entrepreneurs under Mikhail Gorbachev (General Secretary 1985–1991) during his period of market liberalization.[2] These younger generation entrepreneurs were able to build their initial wealth due to Gorbachev's reforms "when co-existence of regulated and quasi-market prices created huge opportunities for arbitrage."[3] The term "oligarch" derives from the Ancient Greek oligarkhia meaning "the rule of the few".

Since 2018, several Russian oligarchs and their companies have been hit by US sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) for their support of "the Russian government's malign activity around the globe".[4][5]

Yeltsin era

By the end of the Soviet era in 1991 and during Mikhail Gorbachev's perestroika (c.  1985-1991), many businessmen in Russia imported or smuggled goods such as personal computers and jeans into the country and sold them, often on the black market, for a hefty profit.

Anatoly Chubais, the man most credited with the Yeltsin-era privatization that led to the growth of the oligarchs[6]

During the 1990s, once Boris Yeltsin became President of Russia in July 1991, the oligarchs emerged as well-connected entrepreneurs who started from nearly nothing and became rich through participation in the market via connections to the corrupt, but elected, government of Russia during the state's transition to a market-based economy. The so-called voucher-privatization program of 1992-1994 enabled a handful of young men to become billionaires, specifically by arbitraging the vast difference between old domestic prices for Russian commodities (such as natural gas and oil) and the prices prevailing on the world market. Because they stashed billions of dollars in private Swiss bank accounts rather than investing in the Russian economy, they were dubbed "kleptocrats".[7] These oligarchs became extremely unpopular with the Russian public, and are commonly thought of as the cause of much of the turmoil that plagued the Russian Federation following the collapse of the Soviet Union in 1991.[8] The Guardian described the oligarchs as "about as popular with your average Russian as a man idly burning bundles of £50s outside an orphanage".[9][10]

Post-Soviet business oligarchs include relatives or close associates of government officials, even government officials themselves, as well as criminal bosses often connected to the Russian government.[11] Some members of these groups achieved vast wealth by acquiring state assets very cheaply (or for free) during the privatization process controlled by the Yeltsin government of 1991–1999.[12] Specific accusations of corruption are often leveled at Anatoly Chubais and Yegor Gaidar, two of the "Young Reformers" chiefly responsible for Russian privatization in the early 1990s.[13][14][15] According to David Satter, author of Darkness at Dawn, "what drove the process was not the determination to create a system based on universal values but rather the will to introduce a system of private ownership, which, in the absence of law, opened the way for the criminal pursuit of money and power".[16]

Although the majority of oligarchs were not formally connected with the Communist Party of the Soviet Union, there are allegations that they were promoted (at least initially) by the communist apparatchiks, with strong connections to Soviet power-structures and access to the monetary funds of the Communist Party.[17][18] Official Russian media usually depict oligarchs as the enemies of "communist forces" - "communist forces" portrayed as a stereotype that describes political power that wants to restore Soviet-style communism in Russia.

During Yeltsin's presidency (1991–1999) oligarchs became increasingly influential in Russian politics; they played a significant role in financing the re-election of Yeltsin in 1996. With insider information about financial decisions of the government, oligarchs could easily increase their wealth even further. The 1998 Russian financial crisis hit some of the oligarchs hard, however, and those whose holdings were still based mainly on banking lost much of their fortunes.

The most influential and exposed oligarchs from the Yeltsin era include:[19][20][21]

They formed what became known as the Semibankirschina (or "seven-banker outfit"), a small group of business moguls with a great influence on Boris Yeltsin and his political environment. Together they controlled from 50% to 70% of all Russian finances between 1996 and 2000.

Fridman, Potanin, Aven and Malkin retained their influence in the Putin era, which began in 1999. The Guardian reported in 2008 that Khodorkovsky, Berezovsky and Gusinsky "have been purged by the Kremlin".[22]

Putin era
Further information: Russia under Vladimir Putin
Putin (left), with Sergei Pugachev (behind center), Mikhail Fridman (center) and Mikhail Khodorkovsky (right) in 2001

The most famous oligarchs of the Putin era include Roman Abramovich, Alexander Abramov, Oleg Deripaska, Mikhail Prokhorov, Alisher Usmanov, German Khan, Viktor Vekselberg, Leonid Mikhelson, Vagit Alekperov, Mikhail Fridman, Vladimir Potanin, Pyotr Aven, and Vitaly Malkin.

Between 2000 and 2004, Putin apparently engaged in a power struggle with some oligarchs, reaching a "grand bargain" with them. This bargain allowed the oligarchs to maintain their powers, in exchange for their explicit support of – and alignment with – Putin's government.[23][24] Many more business people have become oligarchs during Putin's time in power, and often due to personal relations with Putin, such as the rector of the institute where Putin obtained a degree in 1996, Vladimir Litvinenko,[25] and Putin's childhood friend and judo-teacher Arkady Rotenberg.[26] However, other analysts argue that the oligarchic structure has remained intact under Putin, with Putin devoting much of his time to mediating power-disputes between rival oligarchs.[1] Some had been imprisoned, such as Mikhael Mirilashvili.

During Putin's presidency, a number of oligarchs came under fire for various illegal activities, particularly tax evasion in the businesses they acquired. However, it is widely speculated and believed that the charges were also politically motivated per these tycoons falling out of favor with the Kremlin.[27][28] Vladimir Gusinsky of MediaMost and Boris Berezovsky both avoided legal proceedings by leaving Russia, and the most prominent, Mikhail Khodorkovsky of Yukos oil, was arrested in October 2003 and sentenced to 9 years. This was subsequently extended to 14 years, and after Putin pardoned him, he was released on 20 December 2013.[29] The term 'oligarch' has also been applied to technology investors such as Yuri Milner, although without involvement in Russian politics.[30]

Defenders of the out-of-favor oligarchs, often associated with Chubais's party—the Union of Right Forces, argue that the companies they acquired were not highly valued at the time because they still ran on Soviet principles, with non-existent stock-control, huge payrolls, no financial reporting and scant regard for profit. They turned the businesses around and made them profitable for shareholders. They obtain little sympathy from the Russian public due to resentment over the economic disparity they represent.

An economic study distinguished 21 oligarchic groups as of 2003.[31]

Gennady Timchenko and Arkady Rotenberg in 2015

In 2004, Forbes listed 36 billionaires of Russian citizenship, with a note: "this list includes businessmen of Russian citizenship who acquired the major share of their wealth privately, while not holding a governmental position". In 2005, the number of billionaires dropped to 30, mostly because of the Yukos case, with Khodorkovsky dropping from #1 (US$15.2 billion) to #21 (US$2.0 billion).

A 2013 report by Credit Suisse found that 35% of the wealth of Russia was owned by the wealthiest 110 individuals.[32]

Billionaire, philanthropist, art patron and former KGB agent Alexander Lebedev has criticized the oligarchs, saying "I think material wealth for them is a highly emotional and spiritual thing. They spend a lot of money on their own personal consumption." Lebedev has also described them as "a bunch of uncultured ignoramuses", saying "They don't read books. They don't have time. They don't go to [art] exhibitions. They think the only way to impress anyone is to buy a yacht." He also notes that the oligarchs have no interest in social injustice.[33]

On January 30, 2018, the USA Treasury published a "list of oligarchs" per Pub.L. 115–44.[34]

Oligarchs in London

A significant number of Russian oligarchs have bought homes in upmarket sections of London[35] in the United Kingdom, which has been dubbed "Moscow on Thames."[36] Some, such as Eugene Shvidler, Alexander Knaster, Konstantin Kagalovsky and Abram Reznikov, are expatriates, having taken permanent residency in London. This community has led to journalists calling the city "Londongrad". Most own homes in both countries as well as property and have acquired controlling interests in major European companies. They commute on a regular basis between the EU and Russia; in many cases their families reside in London, with their children attending school there. In 2007 Abram Reznikov bought one of Spain's mega recycling companies, Alamak Espana Trade SL, while Roman Abramovich bought the English football club Chelsea F.C. in 2003, spending record amounts on players' salaries.[37]

The billionaire Moscow oligarch Mikhail Fridman, Russia's second richest man as of 2016, is currently restoring Athlone House in London as a primary residence,[38] to be worth an estimated £130 million when restored.[39]

2008 global recession and credit crisis

According to the financial news-agency Bloomberg L.P., Russia's wealthiest 25 individuals have collectively lost US $230 billion (£146 billion) since July 2008.[40][41][42] The fall in the oligarchs' wealth relates closely to the meltdown in Russia's stock market, as by 2008 the RTS Index had lost 71% of its value due to the capital flight after the Russo-Georgian War of August 2008.[43]

Billionaires in Russia and Ukraine have been particularly hard-hit by lenders seeking repayment on balloon loans in order to shore up their own balance sheets. Many oligarchs took out generous loans from Russian banks, bought shares, and then took out more loans from western banks against the value of these shares.[33][44] One of the first to get hit by the global downturn was Oleg Deripaska, Russia's richest man at the time, who had a net worth of US$28 billion in March 2008. As Deripaska borrowed money from western banks using shares in his companies as collateral, the collapse in share price forced him to sell holdings to satisfy the margin calls.[33][44]

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See also

References
  1. "Russia's Oligarchy, Alive and Well", by Andrew S. Weiss, New York Times, December 30, 2013. Archived February 4, 2017, at the Wayback Machine
  2. Scheidel, Walter (2017). The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. Princeton University Press. pp. 51 & 222-223
  3. Guriev, Rachinsky, Sergei, Andrei (Winter 2005). "The Role of Oligarchs in Russian Capitalism" (PDF). Journal of Economic Perspectives. 19: 139.
  4. "Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity | U.S. Department of the Treasury". home.treasury.gov. Retrieved 2019-11-28.
  5. Kolesnikov, Andrei. "Russian Oligarchs in the Era of Sanctions". Carnegie Moscow Center. Retrieved 2019-11-28.
  6. "Profile: Anatoly Chubais". 17 March 2005 – via news.bbc.co.uk. The head of Russia's state power monopoly, Anatoly Chubais, is not just a high-profile politician - he is seen as a symbol of the controversial privatisations which have transformed Russia since 1991.
  7. Johanna Granville, "The Russian Kleptocracy and Rise of Organized Crime". Demokratizatsiya (summer 2003), pp. 448-457 - "The Russian state has metamorphosed into a full-fledged 'kleptocracy'-dedicated to enriching those in power and their associates, usually organized criminal groups."
  8. Holmstrom, Nancy; Richard Smith (February 2000). "The Necessity of Gangster Capitalism: Primitive Accumulation in Russia and China". Monthly Review. Monthly Review Foundation. 51 (09).
  9. Profile: Boris Berezovsky BBC Retrieved on April 28, 2008
  10. What a carve-up! The Guardian, 3 December 2005. Retrieved 14 June 2020. - "Putin, able to see matters rather straighter than Yeltsin, realised two crucial things about the oligarchs: that they were potentially more powerful than him, and that they were about as popular with your average Russian as a man idly burning bundles of £50s outside an orphanage (according to one 2004 poll, only 18% of Russians opposed wholesale renationalisation of the country's resources)."
  11. "Organized Crime in Russia". Stratfor.
  12. Freeland, Chrystia (2000). Sale of the Century: Russia's Wild Ride from Communism to Capitalism. New York: Crown Business.
  13. "Grigory Yavlinsky". www.cs.ccsu.edu. Retrieved 2017-07-30.
  14. Privatization in Russia: its past, present, and future SAM Advanced Management Journal, 1 January 2003. Retrieved 31 July 2017
  15. Yegor Gaidar: The price to pay BBC News. Retrieved 31 July 2017
  16. Satter, David (2004) [2003]. "The History of Reform". Darkness at Dawn: The Rise of the Russian Criminal State (reprint ed.). New Haven: Yale University Press. p. 46. ISBN 9780300105919. Retrieved 14 June 2020. [...] what drove the process was not the determination to create a system based on universal values but rather the will to introduce a system of private ownership, which, in the absence of law, opened the way for the criminal pursuit of money and power.
  17. Virtual Politics – Faking Democracy in the Post-Soviet World, Andrew Wilson, Yale University Press, 2005
  18. Braguinsky, Serguey, and Roger Myerson. "A macroeconomic model of Russian transition." Economics of Transition 15.1 (2007): 77–107.
  19. "The Russian Oligarchs of the 1990s: Boris Berezovsky, Mikhail Friedman, Vladimir Gusinsky, Mikhail Khodorkovsky, Vladimir Potanin, Alexander Smolensky, Vladimir Vinogradov". www.sjsu.edu.
  20. British Paper Names Banking Clique at The Moscow Times, November 5, 1996 (archived)
  21. Dmitry Butrin. "The Results of 10 Years of Capitalism". Kommersant, March 5, 2002 (in Russian)
  22. Parfitt, Tom (19 February 2008). "Billionaires boom as Putin puts oligarchs at No 2 in global rich list". The Guardian – via www.theguardian.com.
  23. Putin: Russia's Choice. Richard Sakwa, (Routledge, 2008) pp 143-150
  24. Playing Russian Roulette: Putin in search of good governance, by Andre Mommen, in Good Governance in the Era of Global is Neoliberalism: Conflict and Depolitisation in Latin America, Eastern Europe, Asia, and Africa, by Jolle Demmers, Alex E. Fernández Jilberto, Barbara Hogenboom (Routledge, 2004)
  25. "The fabulous riches of Putin's inner circle". The Bureau Investigates. Retrieved June 7, 2012.
  26. Oligarchology by Alex Yablon, New York Magazine, Mar 31, 2013
  27. European Court Rules That Khodorkovsky's Rights Were Violated, Radio Free Europe, 31 May 2011.
  28. "Khodorkovsky speaks out on plight of Russia's political prisoners". Euronews. Retrieved 30 December 2013.
  29. "Hague court awards $50 bn compensation to Yukos shareholders". Russia Herald. Retrieved 29 July 2014.
  30. Wired Magazine: "How Russian Tycoon Yuri Milner Bought His Way Into Silicon Valley" by Michael Wolff October 21, 2011
  31. Guriev, Sergei; Rachinsky, Andrei (2005). "The role of oligarchs in Russian capitalism". Journal of Economic Perspectives. 19 (1): 131–150. doi:10.1257/0895330053147994.
  32. Chalabi, Mona (2013-10-09). "The world's wealthy: where on earth are the richest 1%?". The Guardian. Retrieved 19 September 2018.
  33. Harding, Luke (October 25, 2008). "Twilight of the oligarchs". The Guardian. London. Retrieved April 1, 2010.
  34. "Russian Individuals Named on US 'Oligarch List'". VOA. January 30, 2018. Retrieved March 13, 2020.
  35. Michael Weiss, IN PLAIN SIGHT: The Kremlin's London Lobby, World Affairs, Vol. 175, No. 6 (MARCH / APRIL 2013), pp. 84-91.
  36. According to British journalist Nick Watt, reporting for ABC's Nightline. (broadcast of June 1, 2007)
  37. "Over there: American and other foreign owners are revolutionizing British football", Boston Globe, May 25, 2007
  38. New Athlone House owner: ‘I want to restore it to its former glory’ 11:21 30 June 2016 Anna Behrmann, Ham and High
  39. Billionaire's plans for £65 million derelict mansion approved By Emma Woollacott Sep 15, 2016
  40. Chorafas, D. Capitalism without capital. Springer, 2009.
  41. "Russia's Richest Have Lost $62 Billion This Year". Business Insider. Retrieved 2017-07-30.
  42. "Russian Rich Lose $10 Billion in Two Days as Ruble Drops". Bloomberg. Retrieved 2017-07-30.
  43. Thomas Jr., Landon (September 5, 2008). "Russia's Oligarchs May Face a Georgian Chill". The New York Times. Retrieved April 1, 2010.
  44. "Margin Calls Ignite Billionaire Fire Sale". Archived from the original on 2008-10-26.

Further reading
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