How Putin’s KGB Took Back Russia and the West?

 Excerpts from the Author's book, Putin’s People: How the KGB Took Back Russia and then Took on the West published by William Collins Books

by Catherine Belton

‘I want to warn Americans. As a people, you are very naïve about Russia and its intentions. You believe because the Soviet Union no longer exists, Russia now is your friend. It isn’t, and I can show you how the SVR is trying to destroy the US even today and even more than the KGB did during the Cold War.’ ~ Sergei Tretyakov, former colonel in Russian Foreign Intelligence, the SVR, stationed in New York

It was late in the evening in May 2015, and Sergei Pugachev was flicking through an old family photo album he’d found from thirteen years ago or more. In one photo from a birthday party at his Moscow dacha, his son Viktor keeps his eyes downcast as Vladimir Putin’s daughter Maria smiles and whispers in his ear. In another, Viktor and his other son, Alexander, are posing on a wooden spiral staircase in the Kremlin presidential library with Putin’s two daughters. At the edge of the photo, Lyudmilla Putina, then still the Russian president’s wife, smiles.

 Putin’s war in Chechnya helped propel his vault to the presidency and ensured the rise of the St Petersburg siloviki, the ‘men of force’ led by Nikolai Patrushev, then Federal Security Service chief (right)

We were sitting in the kitchen of Pugachev’s latest residence, a three-storey townhouse in the well-heeled London area of Chelsea. The late-evening light glanced in through the cathedral-sized windows, and birds chirped in the trees outside, the traffic from the nearby King’s Road a faint hum. The high-powered life Pugachev had once enjoyed in Moscow – the dealmaking, the endless behind-the-scenes agreements, the ‘understandings’ between friends in the Kremlin corridors of power – seemed a world away. But Moscow’s influence was in fact still lurking like a shadow outside his door.

The day before, Pugachev had been forced to seek the protection of the UK counter-terrorism squad. His bodyguards had found suspicious-looking boxes with protruding wires taped to the undercarriage of his Rolls-Royce, as well as on the car used to transport his three youngest children, aged seven, five and three, to school. Now, on the wall of the Pugachevs’ sitting room, behind the rocking horse and across from the family portraits, the SO15 counter-terrorism squad had installed a grey box containing an alarm that could be activated in the event of attack.

Fifteen years before, Pugachev had been a Kremlin insider who’d manoeuvred endlessly behind the scenes to help bring Vladimir Putin to power. Once known as the Kremlin’s banker, he’d been a master of the backroom deals, the sleights of hand that governed the country then. For years he’d seemed untouchable, a member of an inner circle at the pinnacle of power that had made and bent the rules to suit themselves, with law enforcement, the courts, and even elections subverted for their needs. But now the Kremlin machine he’d once been part of had turned against him. The tall, Russian Orthodox believer with a dark beard and a gregarious grin had become the latest victim of Putin’s relentlessly expanding reach. First, the Kremlin had moved in on his business empire, taking it for itself. Pugachev had left Russia, first for France and then for England as the Kremlin launched its attack. Putin’s men had taken the hotel project the president had granted him on Red Square, a stone’s throw from the Kremlin, without any compensation at all. Then his shipyards, two of the biggest in Russia, valued at $3.5 billion, were acquired by one of Putin’s closest allies, Igor Sechin, for a fraction of that sum. Then his coal project, the world’s biggest coking-coal deposit in the Siberian region of Tuva, valued at $4 billion, was taken by a close associate of Ramzan Kadyrov, the strongman Chechen president, for $150 million. 

In the process, Putin’s men had blamed him for the collapse of Mezhprombank, the bank he co-founded long ago in the nineties that had once been the key to his power. The Kremlin authorities had opened a criminal case claiming Pugachev had caused the bank’s bankruptcy by transferring $700 million from it to a Swiss bank account at the height of the 2008 financial crisis. The Kremlin paid no regard to Pugachev’s claims that the money was his own. It seemed to matter little that the takeover of the shipyards by Sechin at a fraction of their value was the biggest reason for the shortfall in the bank’s funds to creditors. 

The hand of the Kremlin seemed clear. ‘People within the state manipulated the rules against him in order to bring the bank down, unsurprisingly benefiting themselves,’ said Richard Hainsworth, a long-standing Russian banking expert. 

It was a typical story for a Kremlin machine that had become relentless in its reach. First, it had gone after political enemies. But now it was starting to turn on Putin’s one-time allies. Pugachev was the first of the inner circle to fall. And now the Kremlin had expanded its campaign against him from the brutal closed-door courts of Moscow to the veneer of respectability of London’s High Court. There, it obtained a freezing order against his assets with ease, tying the tycoon up in knots in the courtroom along the way.

Putin’s identity card as a Stasi officer would have given him direct access to Stasi buildings and made it easier for him to recruit agents.

Ever since Pugachev had left Russia, the Kremlin had pursued him. At his home in France, he’d been threatened by stooges sent by Mezhprombank’s liquidator. Three members of a Moscow mafia group had taken him out to a yacht off the coast of Nice and demanded he pay $350 million to guarantee his family’s ‘safety’. It was ‘the price of peace’, they told him, the price for making the Russian criminal case against him for the Mezhprom bankruptcy go away, documentary evidence shows. In the UK courts, Pugachev had been a fish totally out of water, incapable of operating according to their unfamiliar rules and procedures. He was too accustomed to the backroom deals of his Kremlin past, too accustomed to slipping through the net of rules and regulations because of his position and power. He hadn’t done himself any favours. Convinced of the righteousness of his position, that he was the victim of the latest Kremlin asset grab, he believed himself above the regulations of the British courts. He’d failed to stick to court orders related to the asset freeze, and had burned through millions of pounds from an account he’d kept hidden from the UK court. He believed the disclosure rules were beneath him, petty compared to the calamity that had befallen his business empire, and no more than part of a Kremlin campaign to hound and frustrate him at every turn. The Kremlin, however, had become adept at pursuing its enemies through the UK court system, while a PR machine was honed to fill the pages of the UK tabloids with allegations of the Russian oligarch’s stolen wealth.

The Kremlin had first learned to navigate its way through the UK court system during its victory against Boris Berezovsky, the exiled oligarch who’d become Putin’s fiercest critic, in a case that seemed to turn Russian history on its head. Berezovsky was the fast-talking one-time Kremlin insider who had tried – and failed – to sue his erstwhile business partner Roman Abramovich, a close Kremlin ally, for $6.5 billion in London’s High Court. The judge overseeing the case, Dame Elizabeth Gloster, had taken a dim view of Berezovsky’s claim that he’d jointly owned one of Russia’s biggest oil majors, Sibneft, and a stake in Rusal, Russia’s biggest aluminium giant, with Abramovich, and that Abramovich had forced him to sell his stakes at a knockdown price. Though Berezovsky was recognised throughout Russia as owner of these concerns, Mrs Justice Gloster said she found him to be ‘an inhererently unreliable witness’, and sided with Abramovich, who’d claimed that Berezovsky had never owned these assets; he’d merely been paid for providing political patronage. Later, it turned out that Mrs Justice Gloster’s stepson had been paid nearly £500,000 to represent Abramovich in the early stages of the case. Berezovsky’s lawyers claimed his involvement was more extensive than had previously been disclosed. 

The Kremlin had further honed its operations in the UK court system through its pursuit of Mukhtar Ablyazov, a Kazakh billionaire who happened to be the biggest political foe of the Kazakh president, a key Kremlin ally, Nursultan Nazarbayev. Ablyazov was pursued by Russia’s state deposit insurance agency, which charged him with siphoning more than $4 billion from the Kazakh BTA Bank, of which he had been chairman, and which had branches across Russia. The Russian agency hired a team of lawyers from the top London law firm Hogan Lovells, who launched eleven civil fraud lawsuits against Ablyazov in the UK, as well as a freezing order on his assets. Private detectives had traced the siphoned $4 billion to a network of offshore companies controlled by the Kazakh tycoon. 

But in Pugachev’s case, no stolen or hidden assets appeared to have been found. No fraud claims had ever been launched in the UK, or anywhere else outside Russia. Instead, on the basis of a Russian court ruling alone, the same team from Hogan Lovells had won the freezing order against Pugachev’s assets, and ably ran rings around him while he chafed at the multitude of court orders that came his way. He’d been interrogated over asset disclosures, and found to have given false evidence over whether the sale of his coal business had been conducted by himself or by his son. It didn’t seem to matter to the judge that the sale had been forced through at a price that was less than one twentieth of the business’s real value. What mattered was whether he’d followed procedure and declared all the assets that remained under his control. Pugachev had been forced to hand over his passports to the court, and was banned from leaving the UK during a prolonged period of questioning over his asset disclosures as the Kremlin’s lawyers tightened the legal net. He’d run through a series of lawyers who in turn seemed baffled by a case that had never been heard on its merits in the UK, while others viewed him mendaciously as easy prey. Spoilt by the flood of Russian cases that Moscow’s tycoons were willing to pay top prices for airing in London’s High Court, legal firms padded their bills to astronomical sums for work that was never done, as documents show. PR firms offered to defend Pugachev’s image for £100,000 a month. ‘He’s on our territory now,’ said one partner at a global law firm representing him.

At first Pugachev had believed the case against him was being driven by unruly Kremlin underlings anxious to draw a line over their expropriation of his business empire. But as the campaign expanded, and Pugachev began to fear for his physical safety, he became convinced that it was being guided by Putin himself. ‘How could he do this to me? I even made him president,’ he said that evening as he sat in his Chelsea kitchen, still shell-shocked by the visit from SO15 and the suspicious devices found underneath his cars. A former friend sent by the Kremlin to London had told him that Putin was personally managing every step of the campaign against him, warning: ‘We have control of everything here, we’ve got everything all stitched up.’

Pugachev had long detected the growing influence of Kremlin cash in London. Long before the legal attack started, he said, he’d met a string of English lords who’d guffawed and shaken his hand, and told him how great they thought Putin was. In those days they believed Pugachev was ‘Putin’s banker’, as the press had called him then, yet they’d still asked him to donate to the Conservative Party without any question or thought. All his former friends from the Kremlin kept relatives and mistresses in town, who they visited at weekends, flooding the city with cash. There was Sechin’s ex-wife, Marina, who kept a house with her daughter here. There was Igor Shuvalov, the deputy prime minister, who owned the most prestigious flat in the city, a penthouse overlooking Trafalgar Square. There were the sons of Arkady Rotenberg, Putin’s billionaire former judo partner, who attended one of the country’s most vaunted private schools, while his ex-wife Natalya shopped and sued her husband for divorce in London’s High Court. There was the deputy speaker of the State Duma, one of Russia’s most vocal patriots, Sergei Zheleznyak, who’d long raged against the influence of the West, yet his daughter Anastasia had lived in London for years. The list of officials resident in London was endless, said Pugachev. ‘They have sorted themselves out very well on this small island with terrible weather,’ he sniffed. ‘In the UK, the main thing was always money. Putin sent his agents to corrupt the British elite.’

The city had grown used to the flood of Russian cash. Property prices had surged as first tycoons and then Russian officials had bought up high-end mansions in Knightsbridge, Kensington and Belgravia. A string of Russian share offerings, led by the state’s Rosneft, Sberbank and VTB, had helped pay the rents and wages for the offices of London’s well-heeled PR and legal firms. Lords and former politicians were paid lavish salaries to serve on Russian companies’ boards, although they were granted little oversight of corporate conduct. Russia’s influence was everywhere. Alexander Lebedev, the former KGB officer and banker who’d positioned himself as a champion of the free press in Russia, had acquired London’s most-read and influential daily, the Evening Standard, becoming a fixture at the capital’s soirées and on the lists for the most sought-after dinner invitations. Another was Dmitry Firtash, a Ukrainian tycoon who’d become the Kremlin’s gas trader of choice, and who despite his links to a major Russian mobster wanted by the FBI, Semyon Mogilevich, had become a billionaire donor to Cambridge University. His chief London minion, Robert Shetler-Jones, had donated millions of pounds to the Tories, while influential party grandees served on the board of Firtash’s British Ukrainian Society. There were other less noticeable players. At least one of them had slipped through the cracks to become close friends with Boris Johnson, then London’s mayor, at the top of the Tory elite. ‘Everyone has gotten used to spies wearing dark glasses and looking suspicious in films,’ said Pugachev. ‘But here they are everywhere. They look normal. You can’t tell.’ …

Interesting, isn’t it? Why don’t you click here to order your copy? 

Copyright © Catherine Belton 2020