Weekly 28 June 2019

The sixth leading Russian businessman this year is facing major criminal charges

Hello! This week we take a long look at a major criminal investigation into Russian businessman Sergei Petrov, owner of Rolf Group, who has been accused of illegal currency transfers. We also dissect grandiose plans for an ‘Orthodox Vatican’ to be built in the town of Sergiev Posad just outside Moscow, and try to explain why a government minister is baffled about questions over his use of $22,000 hotel rooms while on official trips abroad.    

A car dealership tycoon is the latest Russian businessman to face criminal charges

Sergei Petrov is the sixth leading Russian businessman to be targeted by a major criminal investigation this year — such investigations are becoming more and more common. This time, the FSB and the Investigative Committee raided Rolf Group, Russia’s largest car dealership holding company (in 2018, Rolf controlled 11 percent of the market and made $3.6 billion in revenue). Petrov, the group’s founder, and three managers are accused of illegally moving 4 billion rubles ($63 mln) out of Russia. As usual, the charges are confusing, and Petrov has said they may be because of his political activity. All the accused face up to 10 years in prison if found guilty. 

  • What are the charges? According to the Investigative Committee, in 2014, Petrov and his managers illegally transferred $63 million of Rolf’s funds to a Cyprus-registered company owned by Petrov. To do this, Rolf bought Rolf Estate, a Russian company, from the Cypriot company for $63 million. The Investigative Committee estimates that the amount paid for this deal was “inflated several times over” and that forged documents were used. Then, it alleges, the money was moved to an Austrian bank account controlled by the Cypriot company via a Moscow bank controlled by Petrov. Put simply, the argument is that Petrov used a chain of companies to steal money from himself. 
  • Petrov has said that the investigation has been going on for several years and is being led by the notorious Department K at the FSB, which is believed to be behind the many recent prosecutions of high-level businessmen and officials. Recently, the head of Department K and two associates were arrested on fraud charges themselves and a search of their properties turned up $190 million in cash — all three are currently in jail awaiting trial. 
  • Petrov is not accused of fraud, but of violating an obscure law on foreign currency transactions that limits transfers abroad and requires reporting of such transfers to the tax authority in advance. The law in question was passed in 2013, but it is only now that prosecutions are beginning.
  • In a conversation with The Bell, Petrov said the charges were either an attempt to seize his business or linked to his political views — or both. A senior security service officer contacted by The Bell said the latter explanation was very likely. 
  • Several lawyers who spoke with The Bell believe that a ten-year prison sentence for a crime that has no victims is outrageous. Many also highlighted that the asset valuations used by investigators are highly disputable. At the time of the deal, Rolf had an independent auditor who determined $63 million to be a fair price. The similarities with the Baring Vostok case here are uncanny: Michael Calvey is also accused of inflating the value of an asset.
  • Petrov is lucky: he was not in Russia at the time of the raid. Understandably, he does not plan to return. Of the other accused; one is also abroad, the location of another is unknown, and business development director Anatoly Kairo was arrested in Moscow. 
  • Petrov founded Rolf in 1991, but in 2006 he resigned from management and became a Duma deputy for the Just Russia party. As a politician, he was a frequent critic of the government and gave a famous interview (rus) in which he compared the government’s attempts to ensure elections fair to moving chairs around on the Titanic. He was one of a few deputies to vote against the 2012 law banning adoptions of Russian children by foreigners. He also opposed legislation requiring mobile operators and internet providers to store all user data for at least half a year and enable access for the security services. 

Why the world should care 

One theory for the current wave of criminal cases, according to a top Russian businessman interviewed by The Bell, is that, several years ago, a decision was taken to crackdown on capital outflow and corruption. But the political system works slowly – so only now we are seeing the results. And this campaign by law enforcement, he said, is likely being exploited by officials and well-connected executives to solve personal disputes. But the top businessman also predicted the rate of new prosecutions would slow in the near future. “It would be impossible to continue like this, it would be too bad, and it is really hurting business,” he said.

 

Russia to spend $2.2bln to build an ‘Orthodox Vatican’

The location for a new center for Russian Orthodoxy will be Sergiev Posad (a town two hours from Moscow that is the site of one of Russia’s most important monasteries). The ‘Orthodox Vatican’ project was first reported (Rus) by newspaper Vedomosti and it envisages dividing Sergiev Posad into two sections, administrative and clerical, prompting its architects to cite Jerusalem, Mecca and the Vatican as templates. There are also plans to rebuild about a third of Sergiev Posad, adding 800,000 square meters of housing, a new city bypass, and an airport. 

  • The idea was discussed for the first time at the end of 2017, and within six months the project had already been presented. The Russian Orthodox Church then asked President Vladimir Putin for his support.  
  • To create this “capital of Orthodoxy” will cost between $1.9 billion and $2.2 billion, according to estimates by the local mayor. The state is expected to finance the project, with 90 percent of funds coming from the federal budget and 10 percent from the regional budget. Private funding is not envisaged, but may appear at a later stage.
  • Design was carried out by consulting firm Strelka, which is the pet project of Russian businessman Alexander Mamut (who occupies 42nd place on the Russian Forbes list). In just a decade, Strelka has grown from being a hipster bar and a trendy, but tiny, architectural school, whose programme was written by Dutch architect Rem Koolhaas, to an urban planning corporation. The winner of numerous state contracts, Strelka has practically single-handedly re-designed Moscow’s city center. 
  • The order for the ‘Orthodox Vatican’ was placed by Russian development bank VEB through one of its subsidiaries. The bank is also running a program to renovate Russian cities (in which Strelka is also involved). Copying the recent changes in Moscow, several cities across Russia are creating pedestrian zones and giving facelifts to parks and buildings. The paradox is that this entire urban renewal program received $80 million over two years: in other words, three times less than what is required for transformation of Sergiev Posad. 
  • This project is by no means the only giant Orthodox construction project underway at the moment. As The Bell reported last month, the Presidential Administration is due to fund the building of a residence for Patriarch Kirill on the site of a 19th century church complex just outside of St. Petersburg. With a $44 million price tag, the residence will be fully automated and include a small chapel, a billiard room and an elevator. In addition, at the end of May, officials and private investors gave up on plans to build a cathedral in a public square in the Urals city of Yekaterinburg after a series of protests

Why the world should care 

It is well known that the church and state in Russia are closely intertwined — and the speed with which the ‘Orthodox Vatican’ project was approved is yet more proof of this. It seems likely a major Russian businessman will emerge as a co-investor, and there will inevitably be questions about whether their involvement is entirely voluntary.  

Sergiev Posad/Moscow agency

A Russian minister is baffled why his $22,000 a night hotel is raising eyebrows

It’s not just religious officials who enjoy luxury; their secular counterparts do as well. NGO Transparency International has uncovered that, over the last three years, the Presidential Administration has spent $19 million on business trips. But within Russian government, one of the most egregious spenders was the Ministry of Industry and Trade, which forked out $300,000 on overseas trips in two years. The Minister for Industry and Trade, Denis Manturov, stayed exclusively in 5-star hotels, with his most expensive room costing almost $22,000 a night. 

  • For an amount that could have easily buy you a 2-room apartment in a Russian region, Manturov spent one night in the presidential suite of the Peninsula Hotel in Shanghai. The 400 square meter suite included a living room, office, walk-in closet with radio, nail dryer, and a marble bathroom. Manturov’s visit to Indonesia cost Russian taxpayers slightly less: he stayed in the presidential suite of the Ritz Carlton for a mere $3,000 per night. For this he enjoyed a panoramic view of the city skyline, a dining room that seated eight, and a complimentary limousine service. 
  • When asked about Transparency International’s investigation, Manturov was confused about “the basis on which this topic is being discussed.” He added that the cost of the rooms “totally fits within” norms. 
  • As paradoxical as it may sound, Manturov’s last statement is true. According to rules for officials, which have been in place since 2000, the limit on the costs of overnight stays for officials varies from country to country: for example, it is $70 per night in Uruguay and €200 per night in Germany. However, officials may spend more if they get approval from their line managers. 
  • However, after Manturov’s comments, allegations of wrongdoing were made by media outlet Baza, which discovered (Rus) that the trips of Manturov’s ministry were organized by a company linked to the family of a deputy minister. This is a conflict of interest. 

Why the world should care 

In some countries, the publication of such information about the lifestyles of officials would lead to a public outcry. But for Russians, this sort of news is so common that it only led to jokes on social media and amusing attempts to explain why Manturov needed a nail dryer. It is even more revealing that officials react to these revelations not with fear, but slight annoyance.

Anastasia Stognei