The Russian oil industry was born and production quadrupled from 1873 to 1877 with Baku Oil, a joint-stock company, being formed to sell and produce a complete range of petroleum products. About this time time, Nobel Brothers Petroleum Production Partnership set about marketing Russian oil on international markets, where it was in competition with America’s Standard Oil.
In 1899, the Nobel Brothers Partnership produced nearly twenty percent of all Russian oil, almost ten percent of the world’s oil production. At the end of the nineteenth century the Czarist Empire’s oil production had exceeded that of the US for the first time with over fifty percent of world production.
Standard Oil launched a network of international subsidiary companies. In 1888 it formed the Anglo-American Oil Company in Great Britain, and in 1890 the Deutsch-Amerikanische Petroleum Gesellschaft in Germany, in which the Rockefellers owned forty percent of the shares.
Other American controlled companies followed suit setting up subsidiaries across Europe, biting into the Russian market. The Russian reaction was to redirect its exports towards the Far East, where, in spite of established American presence, its producers soon increased their market share to nearly fifty percent.
At that moment in time the first modern automobiles started to make their appearance on the roads of the US and Europe, as navies and shipping companies were converting their fleets to fuel oil. It was the start of new era and a race to capture markets and develop new resources that was to continue during the whole of the century ahead.
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In the last decade of the second millennium Russian oil fell into the hands of a small group of powerful oligarchs who in the process became staggeringly rich. However, with the arrival of Vladimir Putin and his clan the Kremlin set in motion a series of changes that would wrest control from the oligarchs in favour of state controlled businesses.
For those oligarchs who hesitated to heed the Kremlin’s calls was the ever present threat of a Siberian prison cell, many of which abounded in Zabaykalsky krai and Magadan oblast in the Russian Far East, both of which had been at the centre of the Soviet Union’s notorious gulag archipelago.
At the height of Stalin’s purges more than five hundred prison camps had existed in the Magadan oblast alone, a desolate region where winter temperatures fell to minus fifty degrees centigrade. Almost the size of France in terms of square kilometres, it counted a population of just one hundred and fifty thousand souls, one five hundredths of France’s. There, countless numbers of political prisoners died from forced labour, hunger and torture.
The oligarch, former head of Yukos Oil, Mikhail Khodorkovsky, one of Vladimir Putin’s enemies, lived to tell the tale of his forced exile in Zabaykalsky krai, an inhospitable region, a frozen waste for most of the year, near the Chinese border, after purging part of his prison sentence in one of its camps.
Russia had long been a nation used to violence. In recent times, following the fall of the Soviet Union, the Western press revelled in lurid stories of murder and violence in Moscow and Saint Petersburg, where each new day delivered its lot of bloody victims as rival interests fought for control of the Federation’s newly privatised businesses and industries.
That was during the Yeltsin era.
Under Putin, however, the victims were the enemies of the state: journalists, whistle-blowers, dissidents and businessmen, who fell foul of the Kremlin. According to some estimates three hundred thousand people rotted in grim Russian prisons for financial crimes alone, many of whom were sentenced on the basis of trumped up charges by corrupt authorities, for reasons of vengeance, profit or to silence the accused.
Those same vast, empty, regions of Eastern Siberia had been exploited for their raw materials since czarist times. They were nothing more than vast mines, worked under the Communist regime by European Russians, most of whom were forcefully displaced. Since the dissolution, the populations of Eastern Siberia shrunk at an alarming rate, men and women voted with their feet, upping and heading west with their families by the tens of thousands. At the same time, under the wary eyes of Moscow, a steady flow of Chinese moved in, establishing themselves in the larger cities of the regions neighbouring China.
WANTED
It was Friday evening after markets closed when a news flash from Moscow announced Tarasov’s holdings had been seized on instructions of the Russian Ministry of Finance. Suddenly, without the least warning, the City based INI Banking Corporation found itself seriously compromised, as one of its most important holdings, the InterBank Corporation, fell under the control of Russian authorities.
Moscow accused Tarasov of financial crimes and demanded London he be extradited to face Russian justice. To make matters worse the oligarch was posted as wanted on Interpol’s website for fraud and tax evasion.
InterBank had invested heavily in Russian energy companies, financing exploration, production and pipelines, which had come under severe pressure following the collapse of oil and the rouble, increasing the risk of default on the loans contracted in the City through INI.
As the news broke the City panicked with the LIFFE FTSE Index Futures1 sharply tumbling. The risk of a banking crisis suddenly loomed sending financial authorities in London scurrying into action.
As London switched into crisis mode, Michael Fitzwilliam was blithely enjoying a winter break on safari in Tanzania and by the time he was contacted the wheel of fate had already been set in motion. Saturday morning at number 11, Downing Street, the Chancellor had convened a Cobra2 committee meeting to formulate an action plan.
Fitzwilliams arrived in London early Sunday morning and by time he contacted the Chancellor’s staff the die was already cast. It was shortly after lunch time when the CEO arrived at the Treasury, where the Chancellor, whose weekend was already ruined, was irritable and little disposed to take into account the banker’s apprehensions.
Fitzwilliams’ tie up with Tarasov’s bank in 2009 had ruffled a lot of feathers, not only in the City, but also in government circles. The Labour government, in the throes of what Charlie Bean, the then deputy governor Bank of England, called the ‘largest financial crisis of its kind in human history’, had given the green light to the deal against the recommendations of many financial advisors, but the Chancellor saw it as positive move in an otherwise grim economic climate.
At three, Sir Alec Hainsworth, chairman of City & Colonial arrived and without further formalities Fitzwilliams was read the sentence. He was to be offered up on the alter of expediency to avoid the risk of a Lehman style crisis, and was informed in other terms that his sacrifice would save the City.
The way in which the diktat was delivered, the banker, already tired after his long journey from a safari camp in Ngorongoro, numbed, in a state of shock, reacted like a condemned man. His plight was like that of Fred the Shred, the CEO of RBS, who had been unceremoniously booted out six years earlier after the liquidation of Lehman Brothers.
Fitzwilliam had desperately tried to contact Tarasov, who following the announcement from Moscow had disappeared. Kennedy was equally unreachable, gallivanting on a junk, off the coast of Hong Kong, somewhere in the South China Sea, thought Fitzwilliam bitterly, celebrating the Chinese New Year or something like that.
As he faced his inquisitors the banker felt small and very lonely in the large conference room. Presiding was the Chancellor, to his right the Governor of the Bank of England, and to his left the head of the City Financial Authority, flanked by other high ranking Treasury officials. At one end of the table sat the executioner in the form of the Hainsworth, waiting for the sign.
The Secretary to the Treasury passed a document to the Chancellor who turned the pages, scanning them in a perfunctory manner, obviously familiar with the contents.
“Michael,” he said in a familiar almost kindly manner like a doctor about to announce bad news to his patient, “this is a memorandum that details the transfer of control of the Europa Bank Holding to City & Colonial in exchange for a recapitalisation and the issuanc
e of preference shares, to the equivalent value, to the new shareholder, represented here by Sir Alec Hainsworth.”
He slide the document across the imposing table which dated back to the time of Gladstone. His hand remained on the paper as he continued: “Your resignation will of course be accepted and in exchange you will receive a generous compensatory package. Naturally your family shares will not be affected.”
Fitzwilliams was thunderstruck.
With no more ado the Chancellor stood up leaving the memorandum to the shocked banker.
“Needless to say, we are following the situation in Moscow very closely. Unfortunately Mr Putin is unpredictable, to say the least. It is easy to criticise the wisdom of your association with Mr Tarasov in retrospective, approved by our Labour predecessors, however, we are not here to judge, but to resolve the situation engendered by that arrangement.”
He paused, looking around for approval.
“I trust you gentlemen will conclude the agreement by,” he looked at his watch, “let’s say four o’clock.”
With that he quit the room leaving Fitzwilliams to face his judges, jury and executioner.
1. LIFFE FTSE Index Futures: London International Financial Futures and Options Exchange see Wikipedia for details
2. Cobra stands for Cabinet Office briefing room A
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Even though the Russian had feared the worst he was surprised by the speed and determination of Moscow. Suddenly he was a wanted man, hunted by the Kremlin and its all powerful occupier. Like all Russians he had grown up in the knowledge that he could never win against the unpredictable, all present, corrupt state. It was a fact of life, like the Russian winter, that had to be lived with in the same way Russians always had.
Fortunately for Tarasov, British courts treated extradition demands from Moscow in such cases as politically motivated. A similar such case had been that of Boris Berezovsky, who was later found hanged in his bathroom under mysterious circumstances. Another was the demand for the extradition of Yevgeny Chichvarkin, which was debooted after he claimed his business had been seized by corrupt officials.
The banker’s outspoken criticism of the governments programme, in which businesses exchanged their dollar reserves for rouble denominated government bonds, had angered the Kremlin and set in motion a smear campaign piloted by Andrei Azhishchenkov. Tarasov was accused of unpatriotic acts, bordering treason, including encouraging and facilitating capital flight.
Almost every Russian oligarchs owed his wealth to the privatisation of state enterprises during the period that immediately followed the demise of the Soviet Union. More by good fortune and opportunism, than by their skills, certain Russians, used to the brutal take it or leave it business environment of the Communist world, found themselves at the head of industries that were often monopolistic on a local, regional or national base.
Fortunes were made overnight. High ranking officials and self appointed political leaders took advantage of their power either by seizing businesses and markets for their own advantage, or that of their families and close friends.
Everything was up for grabs: natural resources, basic materials, refining and manufacturing industries, construction, banks, distribution, transport, food and drinks, the list was long. Combinats were dismantled, their different divisions grabbed by a hitherto unknown species of entrepreneur formed in the roughshod methods of the Soviet Union.
Tarasov had financed such entrepreneurs, one of which was the new owner of a huge industrial bakery plant, previously part of a vast virtually bankrupt industrial complex, a former Soviet combinat, which had dominated the life of a middle-sized town near Ufa. In the economic conditions that reigned in the early post-Soviet period, the combinat could no longer fulfill the social role it had played under the old regime. Its dismantlement, or rather abrupt financial collapse, saw its multiple services handed over to any dynamic manager who seemed capable of running them on a viable business basis.
The banker provided the loans necessary to capitalise the business and soon the enterprising manager found himself sole owner of the town’s only bakery with its buildings, equipment and workers, supplying tens of thousands with their daily needs. With hard work and careful management it was transformed from an inefficient loss making, socialistic style, production unit, into a thriving business. In the space of the three or four years that followed his takeover the baker became a rich man, expanding his market to nearby towns and villages without any real competition to speak of.
It was an extraordinary make or break moment for such men, and Tarasov himself had been one of them.
However, many of the changes that had taken place since the dismantlement of the Soviet Union were superficial and corruption was rampant in all its diverse forms. Material improvement had come for many, mostly those in Moscow, Saint Petersburg and large cities. Home ownership, cars, foreign holidays became common place on condition the economy prospered. Regrettably, the economy of the Federation had not evolved, in reality industry withered, as the country became even more dependent on commodities, that is to say oil, gas, basic chemicals and minerals, leaving it vulnerable to the caprices of global commodity markets.
When the crunch came, those who could got out, and those who could not, ordinary Russians, hunkered down, waiting and hoping life would improve, a long tradition in Russia.
Tarasov in his soul was like any other Russian and behind his brash style was the dread of the age old Russian demon that came with a knock on the door in the depth of the night. Perhaps the demon had changed, abandoned his trademarks: his heavy leather coat, a fedora pulled down over his forehead, but the result was no less brutal and the prison cell as hellish as ever.
He feared assassins in the pay of the FSB who stalked the enemies of the Kremlin. He had known others and had lived in their shadow for over two decades. As a young banker, in Yeltsin’s days, bodyguards watched over him day and night as bankers and businessmen were gunned down in broad daylight on the streets of Moscow, when gunslingers walked the streets when assassination, kidnapping and extortion were rife.
Gangsters were paid to eliminate business rivals, to settle debts, rival underworld groups fought over almost everything. Casinos sprung up everywhere and gang warfare went with the business. There was so much money to be made from gambling, nightclubs and prostitution that Tarasov’s bank worked overtime, laundering the vast sums money that flowed in, most of which was converted into investments in real estate.
Just like Wyatt Earp, Putin’s no nonsense methods changed all that. He had the most unruly criminal elements run out of town, and in Moscow and Petersburg the Bratva withdrew from sight into its sinister world. At the same time banks cleaned up their game and turned their attention to financing aboveboard residential and commercial property development as the economy boomed.
As his wealth grew and in spite of an improved climate of security in Moscow, Tarasov’s security team was reinforced, their role was to watch over him and his family around the clock, protect his multiple residences, offices, motor vehicles, jets and yachts, travelling with him wherever he went, vetting those who met with him, securing the hotels and places he visited.
In London it was different. There he discovered he could walk the streets in Chelsea or Knightsbridge with little risk of danger, though he took the precaution of not openly displaying his wealth, unlike certain of his countrymen who flashed their money around with high profile receptions and in extravagant nightclubs.
Tarasov’s most urgent task was to protect his family before the news broke and the media circus arrived. He informed his housekeeper they would be spending the weekend in Dorset, where he owned a property in Poole. Then, with his wife Kseniya and their two young children, they discretely quit their Knightsbridge home.
To avoid arousing suspicions they packed no more than a couple of overnight bags with the children’s usual affairs. Tarasov switched off his mobile and removed the SIM card. From his safe he took a couple of new unused ph
ones; a ready prepared envelope containing passports, driving licences and other essential documents. In addition he took a substantial sum of money: pounds, dollars and euros as well as three credit cards registered to offshore accounts.
George Pyke, his loyal head of security was alerted and informed by Tarasov of his plans. Under a veil of the strictest security Pyke set up an invisible round-the-clock vigil, posting his most trusted men, armed and ready for action, to watch over the oligarch and his family. The oligarch’s security was not to be taken lightly after the murder of Alexander Litvinenko in London and more recently one of the most Kremlin’s outspoken opponents, Boris Nemtsov, on a Moscow street just one hundred metres from the Kremlin.
Tarasov had his driver deliver the Land Rover to the front door and help put their affairs in the rear, it was as though the family was taking off for a weekend break. Then with no more ado his housekeeper and driver politely waved goodbye and he turned out into the Knightsbridge traffic and headed for Chiswick and the M4.
The oligarch had never had the least illusion as to risks great wealth and the power it engendered, financial power that is, a position that provoked both jealousy and envy in high spheres where courtiers vied for influence and the prince’s favour.
Tarasov had witnessed how others, who had been equally privileged members of the prince’s inner circle, had suddenly fallen from grace. The court of the Kremlin was fraught with as many dangers as that of a medieval czar’s.
Hardliners, like General Alexander Bastrykin, part of the select circle of silovoki1, known for their hard attitudes and brutal methods, would show no mercy. Bastrykin, an opponent of democracy, civil rights and what he described as pseudo liberal values, saw the fall in oil prices and the devaluation of the rouble as part of an ongoing plot against Russia and men like Tarasov as instruments of the West.
Cornucopia Page 14
