Red Notice

by Bill Browder

  Elena was different. She was like a professional woman you might meet in London, Paris, or New York. She didn’t need a man for money, and certainly not to make her feel better about herself. Winning her would not be so easy. I wasn’t discouraged, though. Soon after our lunch date I called and asked her out again, this time to dinner. I must have been doing something right. Although she didn’t jump at the chance, she did agree.

  We went to a Chinese restaurant called Mao and she was even more aloof than she had been before. She knew I had ulterior motives and she was being cautious. As we walked through the restaurant to our table and took our seats, she seemed disinterested.

  Which naturally made me want her that much more.

  We made small talk for a while, and then I asked, “Have you seen the article in Foreign Affairs by Lee Wolosky? About how America should treat the oligarchs like pariahs?”

  Elena wrinkled her nose in a subtle gesture of disapproval. “No, I haven’t.”

  “It’s very interesting.” I took a sip of red wine. “The writer suggests that the US government should take away the oligarchs’ visas so they can’t go to America.”

  Elena had flawless porcelain-white skin and a long, regal neck, and as I spoke, little red blotches began to break out across her skin. “Why would the Americans single out Russians like that? There are plenty of bad people all over the world. It would be hypocritical,” she declared, as if I’d insulted her.

  “No, it wouldn’t. The oligarchs are monsters and you have to start somewhere,” I countered matter-of-factly.

  I’d struck a nerve, and the tone of our dinner changed. Why had I brought up this Foreign Affairs article? I wanted to gain Elena’s trust and affection, not upset her. I dropped it and tried to change the subject, but the damage was done. We parted that evening with a perfunctory double-cheek kiss. It didn’t matter how much I liked her, I’d taken an unwarranted swipe at her homeland. As I walked away that night, I felt sure that I would never see her again.

  For the rest of the night I couldn’t stop chiding myself for screwing up the date, nor could I shake the idea that my feeble attempt at romance was a reflection of my other troubles. The fund was still struggling, the Russian economy was on its knees, and it looked as if the oligarchs were about to steal every last penny left in the fund. I was screaming into the wind, not only with my work but with this unattainable woman as well. I climbed into bed racked by anxious energy. After about an hour of tossing and turning I picked up the phone and dialed my friend Alan Cullison from the Wall Street Journal. It was around midnight but that didn’t matter. Alan was always up late and I could count on him to talk. I told him about my unsuccessful date and he played along, offering me the usual condolences. Then, about midway through my story, I mentioned Elena by name.

  “Wait—you got a date with Elena Molokova?” Alan interrupted.

  “Two dates, actually.”

  “Shit, Bill, that’s an accomplishment in itself. Lots of people are after her.”

  “Yeah, well, I guess they’ll get her. I blew it.”

  “Eh, who cares. . . . There’s a million good-looking girls in Moscow.”

  I shrugged and said quietly, “Yes, but not like this one.”

  Alan didn’t have much sympathy for me, and after a while longer we hung up. I eventually fell asleep and woke the next morning determined to go about my life. I would simply try to forget about Elena. I was a busy guy who had a lot of work to do, and there were other women out there, if that’s what I wanted. . . .

  Only that wasn’t what I wanted. Try as I might, I could not forget Elena, and a week after our dinner at Mao I decided that I had to do something to salvage the situation.

  But what? How could I reach out without seeming desperate or pathetic? All I could remember, other than her disappointment in my beliefs regarding the oligarchs, was the story of how Elena’s father died. It had happened three years earlier when he’d suffered a sudden and unexpected heart attack. His death caught her completely off guard, and I remembered her saying that the worst thing about it was that she never got to say good-bye. Too many things were left unsaid.

  The story of her father’s death reminded me of a book I’d recently read called Tuesdays with Morrie. I wrote a short note to Elena and stuck it in the front cover of my copy. I wrapped it up and had Alexei deliver it to her office. The note read:

  Dear Elena,

  After you told me about your father, I couldn’t help but think of you in relation to this book. It’s about a dying man who’s trying to say all the things he wants to say before he no longer would be able to. I don’t know if you have the time to read it, but I hope you do because it might touch you the way it touched me.

  Warmly,

  Bill

  Frankly, this was a long shot, even though the book truly did have a great effect on me. It was simple, direct, and incredibly moving. But as I sent it to her, I was afraid she would see it as something different, like a small Trojan horse I was using to try to infiltrate her heart.

  Another week passed with no word and I was sure that I’d missed the mark entirely. But then a week later, Svetlana leaned across her desk and said, “Bill—there’s a phone call from Elena Molokova.”

  My heart jumped and I took the call. “Hello?”

  “Hello, Bill.”

  “Hi, Elena. Did you . . . did you get the book I sent?”

  “I did.”

  “And did you have a chance to read it?”

  “I did.” Her voice was softer than it had been before. I couldn’t be sure, but it sounded as if a layer of toughness had been peeled back.

  “And did you like it?”

  She sighed. “I liked it a lot, Bill. I just finished it. Just now. It really spoke to me. Thank you.”

  “I’m glad. I mean, you’re welcome.”

  “It was surprising too.” Her tone changed ever so slightly, wandering into a personal space where she hadn’t yet led me.

  “Oh? How’s that?”

  “Well, I didn’t take you for such a sensitive man, Bill. Not at all.” I could hear her smile through the phone.

  “I’m not sure I am very sensitive, to be truthful.” There was a pause. “Tell me, would you . . . would you like to have dinner again?”

  “Yes, I would. I would like that very much.”

  A couple nights later I met Elena at Mario’s, an expensive Italian restaurant frequented by the Russian Mafia, but which also featured Moscow’s best Italian food. I arrived first and took a seat at the bar, and when the maître d’ brought Elena over, I had to look twice. She was transformed. Her flaxen hair was no longer tied in a bun but rested softly on her shoulders. Her lipstick was redder than before, and her black dress was simultaneously tighter and classier than anything I’d seen her in before. She wasn’t just beautiful. She was sexy. It was clear that for her, this was really our first date.

  We sat and had dinner. We didn’t talk about Russian oligarchs or corporate governance or business practices; we just talked about our families and our lives and our aspirations—what everyone talks about when they’re getting to know someone. It was great. Before we said good-bye that night, I grabbed her around the waist and pulled her toward me, and without any resistance we shared our first real kiss.

  After that we spoke every day, and I would have been happy to see her every day too, but she had time to see me only once a week or even once every two weeks. We carried on like this for three months—nice dinners, nicer conversation, a real kiss before going our separate ways. I wanted more and it seemed that she did too, but I couldn’t figure out how to get past her defenses. So I decided that I had to do something rash and romantic.

  The May holidays—a big deal in Russia, when everything shuts down for ten days—were fast approaching. One afternoon I called her. “How would you like to go to Paris with me for the holiday?”

  She hesitated. I surely wasn’t the first man to ask if I could whisk her away for an impromptu getaway, a
nd we both knew what would happen if she said yes. After a few seconds she said, “Let me think about it, Bill.”

  Ten minutes later she called back. “I’d love to come with you if I can get a visa.” A warm feeling welled in my chest and stomach as I heard I’d love to, but it was quickly tempered by the words if I can get a visa. Getting West European visas for Russian girls under the age of thirty was no small feat. It usually required a few weeks and a mountain of documentation to show that the applicant had no intention of staying in the West. Making it worse, we had only four days before the start of the holidays to sort it out.

  Elena called some travel agents. Luckily, one was organizing a group tour to Paris and was on her way to the French embassy that afternoon with thirty passports for visas. If Elena could deliver the paperwork in time, she had a shot at getting her visa quickly. She put everything together and, amazingly, her application was approved the next day. Less than a week after I’d asked her, we were sitting next to each other on an Air France flight bound for Paris.

  In an attempt to impress Elena, I booked a suite at the Hôtel Le Bristol, one of the nicest and most lavish hotels in France, if not the world. A pair of white-gloved bellhops took our two small bags and escorted us to our room. I walked behind Elena down the blue-carpeted halls decorated with Louis XV armchairs and wall sconces, peeking over her shoulder to gauge her response. She had a slight smile on her face, but she always seemed to have a slight smile on her face, no matter what her mood. We reached our room. The first bellhop opened the door, and we walked into one of the most impressive hotel rooms I’d ever been in, and by then I’d been in quite a few. I tipped the bellhops and uttered my thanks in my regrettable French and turned to Elena.

  She was not impressed, or if she was, the same slight smile masked it perfectly. “Let’s go out,” she said.

  We freshened up and made our way downstairs to Avenue Matignon. Paris is made for strolling, so we walked slowly, talking now and then about nothing in particular. We held hands at intervals, but never long enough to give me comfort that I’d finally won her over. The sky grew more ominous as we walked, and as we turned onto the Champs-Élysées, the clouds overhead were heavy and looked ready to let loose. “I can smell the rain coming,” Elena said.

  “Me too.”

  We picked a café that had umbrellas over its outdoor tables and sat. The waiter brought warm bread and I ordered a bottle of Bordeaux. We had mussels in white wine and a big bowl of frites. The rain held off. I ordered a crème brûlée and a pot of English breakfast tea, and when the dessert arrived, fat raindrops began to pelt the sidewalk and the umbrellas in a staccato rhythm. The umbrella was not big, so I scooted my chair around the table and wrapped my arm around Elena’s waist in an attempt to keep her dry. We giggled like schoolkids as the sky opened up and the rain fell in a heavy spring downpour. I pulled Elena directly into my lap, and she wrapped her arms over mine and we squeezed each other.

  At that moment I knew that she was all mine, and that I was all hers.

  17

  Stealing Analysis

  It’s amazing how being in love changes things. When Elena and I returned to Moscow, I was totally reenergized. With Elena at my side, I felt as though I could take on any challenge.

  At the time, my overriding concern was to stop the massive theft taking place in the companies in the fund’s portfolio. The Hermitage Fund had already lost 90 percent of its value from the Russian default, and now the oligarchs were in the process of stealing the remaining 10 percent. If I didn’t do something, the fund would be left with absolutely nothing.

  These thefts were happening in every business sector, from banking to natural resources, but the company that truly distinguished itself was Russia’s largest—the oil and gas giant Gazprom.

  In terms of output and strategic significance, Gazprom was one of the world’s most important companies. Yet the entire market value of the company—$12 billion—was smaller than your average midsize US oil and gas firm. In terms of hydrocarbon reserves, Gazprom was eight times the size of ExxonMobil and twelve times bigger than BP, the largest oil companies in the world—yet it traded at a 99.7 percent discount to those companies per barrel of reserves.

  Why was it so cheap? The simple answer was that most investors thought that 99.7 percent of the company’s assets had been stolen. But how could virtually all of one of the world’s largest companies even be stolen? No one knew for sure, but everyone accepted it as fact.

  Even though I knew how crooked the Russians could be, I couldn’t accept that Gazprom’s management had stolen the whole thing. If I could somehow prove that the market was wrong, then there was a lot of money to be made. I needed to study this company and figure out what was really going on. What I needed to do was a “stealing analysis.”

  But how do you do a stealing analysis of a Russian company? This wasn’t something they taught at Stanford Business School. I obviously couldn’t confront Gazprom’s management directly. I also couldn’t ask the research analysts at any of the major international investment banks. All that mattered to them was fee-paying work, meaning their lips were so firmly planted on the asses of Gazprom’s management that they would never publicly acknowledge the egregious thefts going on under their noses.

  As I thought about how to proceed, I realized that my experience at BCG was worth something in this situation. As a management consultant I’d learned that the best way to answer difficult questions was to find the people who knew the answers and interview them.

  So I made a list of people who knew things about Gazprom: competitors, customers, suppliers, ex-employees, government regulators, and so on. I then invited each of them to a breakfast, lunch, dinner, tea, coffee, or dessert. I didn’t want to scare them off prematurely, so I didn’t tell them my whole agenda. I just said that I was a Western investor interested in talking to them. Surprisingly, about three-quarters of the roughly forty people I invited agreed to meet.

  My first meeting was with the head of planning at one of Gazprom’s small domestic competitors. Bald and slightly overweight, he wore a Soviet watch and a rumpled gray suit. Vadim and I met him for lunch at an Italian restaurant called Dorian Gray, directly across the Moscow River from Bolotnaya Square.

  After the usual introductory chitchat, I said bluntly, “We wanted to talk to you because we’re trying to figure out what’s been stolen from Gazprom. You’re one of the experts in the field, and I was wondering if you might be willing to share some of your knowledge with us?”

  There was a moment of silence and I thought maybe I’d crossed a line. But then his face lit up. He placed his hands on the white tablecloth and leaned forward. “I am so glad you’ve asked. Gazprom management is the biggest bunch of crooks you could imagine. They’re stealing everything.”

  “Such as?” Vadim asked.

  “Take Tarkosaleneftegaz,” the man said, banging his spoon on the table. “They took it right out of Gazprom.”

  Vadim asked, “What’s Tarko—”

  “Tarko Saley,” the man said, cutting Vadim off. “It’s a gas field in the Yamalo-Nenets region. It has something like four hundred billion cubic meters of gas.”

  Vadim got out his calculator and converted this number into barrels of oil equivalent.1 The number he got—2.7 billion barrels of oil—meant that Tarko Saley was bigger than the reserves of the US oil company Occidental Petroleum, a $9 billion company.

  I have pretty thick skin, but taking a company worth $9 billion right out of Gazprom shocked me. As the man went through the details, he named names, gave dates, and told us about other major gas fields that were being stolen. We followed up with as many questions as we could think of and filled seven pages of a Black n’ Red notebook. We eventually had to end lunch after two hours, otherwise he would have gone on forever.

  Without knowing it, I’d stumbled upon one of the most important cultural phenomena of post-Soviet Russia—the exploding wealth gap. In Soviet times, the richest person in Russia was
about six times richer than the poorest. Members of the Politburo might have had a bigger apartment, a car, and a nice dacha, but not much more than that. However, by the year 2000 the richest person had become 250,000 times richer than the poorest person. This wealth disparity was created in such a short period of time that it poisoned the psychology of the nation. People were so angry that they were ready to spill their guts to anyone who wanted to talk about it.

  Most of our other meetings went roughly the same way. We met a gas industry consultant who told us about another stolen gas field. We had a meeting with a gas pipeline executive who recounted how Gazprom had diverted all of its gas sales in the former Soviet Union to a murky intermediary. We met with an ex-employee who described how Gazprom had made large, below-market loans to friends of management. In all, we filled two notebooks with damning allegations of theft and fraud.

  If you were to believe all the information we collected, this was probably the largest theft in the history of business. Only there was one big catch. We had no idea if any of these allegations were true. The things people were saying could easily have been sour grapes, exaggeration, or deliberate misinformation. We needed to find a way to verify what we had heard.

  But how could we verify anything in Russia? Wasn’t that the essence of the problem we were facing with Gazprom in the first place? Wasn’t Russia a place that was so extremely opaque that you sometimes felt as though you couldn’t even see your hand in front of your face?

  It appeared that way, but in reality, it wasn’t so opaque at all. All you needed to do was scratch the surface to find that Russia was strangely one of the most transparent places in the world. You just needed to know how to get the information, and we learned this almost by accident a few weeks after we’d finished the Gazprom interviews.