Londongrad: From Russia with Cash; The Inside Story of the Oligarchs

Little of this unprecedented accumulation of wealth has been invested in Russia in business or charity. Rather, most of the money has been secreted abroad, with billions of dollars hidden in a labyrinth of offshore bank accounts in an array of tax havens, from Switzerland and Jersey to the British Virgin Islands and Gibraltar. Much has ended up being deposited in and managed by British banks. Stashed away, it has been almost impossible to trace. Despite attempts by Russian and British law enforcement agencies, little of it has been recovered and requisitioned back to Russia.

Russia is where the money originated, but it has not been a comfortable place to spend it - too many people pointing fingers in Moscow restaurants, too much scrutiny by the tax police, and the constant fear of assassination. The Russian rich cannot go anywhere without bodyguards and bullet- and bomb-proof cars. Even wearing bespoke suits attracts attention. But in the UK or Europe they have been able to go mostly unrecognized and can relax, spending their gains without fear of censure or of being called to account. After buying their multi-million pound town houses and country estates, they have indulged their sybaritic lifestyles, cruising in St Barts, skiing in Gstaad, and shopping in Knightsbridge.

For their wives it has been heaven. ‘London is a metropolis,’ said Olga Sirenko, who edits a website for Russian expatriates. ‘It is fashionable. It has all the boutiques and the culture. Moscow doesn’t have that kind of chic.’ Aliona Muchinskaya, who has lived in Britain since 1991 and runs her own PR company, says that Russians now dismiss Paris as being ‘too dowdy and villagey’. London, by contrast, is ‘bustling and busy with its restaurants and nightclubs. Russians can hire Rolls-Royces and private jets more easily here.’

On arrival in London the first port of call for the affluent, socially aspiring Russian was to the estate agent, notably Savills, Knight Frank, or Aylesford. Deals were cut at high speed: no mortgages, just cash. In 2006 one-fifth of all houses sold for over £8 million went to Russians. For properties over £12 million, the figure was higher still. But Russians have been extremely selective in location, not merely restricting themselves to the golden postcodes - SW1, SW3, W1, and W8 - but only to certain streets and squares within them. Owning a British country property is also prestigious. Again, their choice of location has been very specific: St George’s Hill and Weybridge and Wentworth Park, both in Surrey.

The next decision for the oligarch seeking to emulate the British aristocracy was which top boarding school to send their offspring to, for a British education is another motivating factor for moving to the UK. Public schools generally offer high academic standards and a secure, friendly environment. In Moscow, by contrast, kidnapping is a constant and real fear. While London’s elite estate agents set up offices in Moscow and St Petersburg to woo ultra-rich buyers, British public schools, colleges, and universities have also sent their senior teaching staff to Russia on recruitment drives.

By 2008, it was no longer surprising to find Russian students at British schools and top universities, whether it was Abramovich’s teenage daughter at an independent all-girls’ school in London or foreign minister Sergei Lavrov’s daughter at the London School of Economics. School numbers soared from 2000 and some Russian parents started to seek schools where there were no other Russians. The fees - up to £30,000 a year - may not have been a problem, but old habits died hard. A headmistress of one top girls’ public school told the story of a Russian whose daughter had failed the entrance exam and who offered her a suitcase full of cash. He promised to pay for anything - a new gym, classrooms, a swimming pool. ‘Things don’t work like that over here,’ said the bemused headmistress. At another top school a parent asked permission to land his helicopter on the cricket field when visiting his child.

While most Russian children eventually return home, an English education is regarded as a commercial benefit. ‘I know that some oligarchs only hire students with a Western education,’ said Boris Yarishevsky, president of the Russian Society at the London School of Economics.

(#litres_trial_promo) This also extends to politicians. ‘I know people whose fathers occupy really high positions in the Russian government and I know they study in London,’ he added. ‘I don’t think that they would want me to give out their names, though.’

(#litres_trial_promo) It is quite possible that one day Russia - like many African and Middle Eastern states - will elect a President who has been educated at a British private school.

The UK has long been a haven for Russian exiles and dissidents. Anti-tsarist radicals flocked to London in the early twentieth century and Revolutionary Congresses were held here every two years. At the 1907 Social Democratic Congress the New York Times reported that an arrest warrant had been issued for one notable attendant, Vladimir Ilyich Lenin: ‘A Famous Rebel in London. Lenin Will Be Arrested if he Returns to Russia - Real Name Ulianoff ’ ran its headline. Lenin was not a permanent exile but visited the city six times between 1902 and 1911. At Seven Sisters Church in Holloway, north London, he met workers whom he described as ‘bursting with socialism’, while the area around Whitechapel and other parts of the East End swarmed with radicals. During one of his trips Lenin saw Hamlet at the Old Vic and visited Speaker’s Corner and the National Gallery. It was at the British Museum in 1902 that he first met Leon Trotsky, who had just escaped from Siberia.

After the 1917 Revolution, relatively few affluent Russians fled to London - only 15,000 by 1919. Far more moved to the Slavic states, to Berlin, and to a lesser extent to France and China, particularly Shanghai. Those who did arrive in Britain were a mix of aristocrats and middle-class liberal intellectuals, notably the family of the philosopher Isaiah Berlin who arrived in 1919 and settled in the Surrey town of Surbiton. ‘I am an Anglophile, I love England,’ Berlin once reflected. ‘I have been very well treated in this country, but I remain a Russian Jew.’

(#litres_trial_promo) Other descendants of this first wave of Russian immigration include the actress Dame Helen Mirren (born Ileyna Vasilievna Mironov), winner of an Oscar for The Queen, and the Liberal Democrat leader Nick Clegg.

During the Cold War there was always a sprinkling of new Russians coming to London. Some were dissidents fleeing the gulags; others were high-level KGB defectors who ended up rubbing shoulders in London with White Russians - mostly the offspring of those who had fled Russia after 1917. The latter lived mostly quiet lives, spoke good English, and were largely Anglicized. The 1991 Census recorded 27,011 residents living in the UK while claiming the former Soviet Union as their place of birth. Most of them would have been Russian.

The collapse of the Eastern Bloc in the late 1980s had a dramatic impact on the pace of Russian arrivals, unleashing a new and unprecedented wave of migration from Russia and former Soviet and East European states. In 1991 the British Embassy in Moscow issued barely 100 visas - to a mixture of those working for Russian companies, students, and Russians who had married Britons - while only one Russian living in the UK was granted citizenship. Even by the mid-1990s, Londoners would have started to become aware of the occasional unrecognizable foreign accent in a shop or in the street - those Russians who did come congregated in a few favourite restaurants and nightclubs - but otherwise the early arrivals remained largely anonymous. Gradually that trickle turned into a flood. By 2006, the number of Russian visas issued had soared to 250,000, while the number granted citizenship in that same year had risen to 1,830. Berezovsky has likened the twenty-first-century Russian wave to the influx of nineteenth-century Russians to Paris. ‘It used to be that Russian aristocrats spoke French and went to France,’ he said. ‘The modern Russian speaks English and feels more comfortable in England.’

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The early Russian migrants - mostly professional middle class but by no means wealthy - were joined within two or three years by a quite different stratum of Russian society. These were what their countrymen dubbed ‘the new Russians’, and they started to arrive between 1993 and 1994. This is the group that was beginning to make money, though not on the same subsequent scale, out of Boris Yeltsin’s economic reforms, the easing of restrictions on private enterprise, and the first wave of privatization. They were a mix of state bureaucrats, entrepreneurial hustlers, Kremlin insiders, and former KGB officials; others were members of emerging Russian-based criminal gangs.

This group of ‘new Russians’, who were always outnumbered by ‘ordinary’ Russian migrants, were by and large not coming to London to settle down. They came on short-term tourist or business visas, to attend a conference or a business meeting, or on shopping and spending trips. As one Russian already living here who knew some of them put it, ‘At this time there was no real dream to come and settle in London. It was difficult to get a permanent visa except illegally, work permits were scarce, and most of this group could make much more money in Moscow than in London. They had money and came here for a week or two at a time to burn it.’

During the 1990s, Britain gradually eased its entry regulations. Tourist and business visas became easier to acquire. Especially welcomed by the authorities were those with money. Anxious to encourage investment from abroad, the government bent the rules to encourage the arrival of the super-rich. ‘Essentially, if you are coming to the country with money to spend, you’re very much welcomed with open arms,’ said John Tincey, Vice-Chairman of the Immigration Service Union, in 2007.

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In 1996 the Conservative government of John Major introduced a new ‘investor visa’ for those wanting to make the UK their main home and able to invest at least £1 million in the country. Of this at least £750,000 had to be invested in either government bonds or UK-registered companies. Those investing in this way were, after five years, allowed to apply for permanent residency and eventually UK citizenship. Only one other country in the world - the United States - operated such a scheme (though with a much lower entry fee) and a number of wealthy Russians took advantage of the rule. All they needed to do was meet the investment cash criterion.

The process of seduction worked. The Russians, along with the super-rich of other nations, poured into Britain. As Forbes magazine described it in 2006: ‘London attracts the elite of the world’s rich and successful. It can lay claim unchallenged to one title: it is the magnet for the world’s billionaires.’

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Once here, the newly enriched Russians were not shy about spending their way through the capital. They quickly became addicted to high living the British way. In London, history, culture, and the attractions of consumer spending often come together in classic British brands that seem to have a special appeal. The more traditional, the more alluring: shopping at Fortnum & Mason and Burberry, buying a £900 bottle of port at the St James’s wine merchant Berry Bros & Rudd, tea at Claridge’s, and dinner at Rules. The Russians also took to two other British institutions, London’s leading auctioneers Sotheby’s and Christie’s. Here, at the height of the art boom of the mid-noughties, they could be found outbidding other collectors and leading international dealers for the works of French Impressionists and contemporary British artists.

But the staggering spending of Russians is not based just on a crude materialistic desire for luxury goods; it also stems from a fatalistic mindset and generally pessimistic approach to life. For centuries the Russian people have suffered enormous hardship, poverty, starvation, and brutal repression: an estimated 20 million died during Stalin’s regime, and another 1.1 million perished during the siege of Stalingrad alone during 1942-3. Even after the collapse of the Soviet empire, millions continued to live in a state of permanent insecurity and anxiety exacerbated by a harsh winter climate, economic instability, and a corrupt rule of law. Even the new billionaires and their families believe that they could lose everything tomorrow. A favourite Russian saying goes: ‘Never say never to poverty or prison. Both could happen tomorrow.’ This is why they spend. And they also believe in another Russian adage: ‘That which does not grow and expand will expire and will then die.’

For the Russian male the addiction to spending has manifested itself in the acquisition of yachts, jets, and cars. ‘We have a positive attitude towards the English car culture,’ said Alexander Pikulenko, motoring correspondent for the Moscow radio station Ekho Moskvy.

(#litres_trial_promo) In 2007 an estimated 40 per cent of Mercedes-Benz sold at their central London showroom went to Russians. The Russians also brought the good times to the UK’s fledgling private aviation industry and helped turn scores of Britain’s own home-grown entrepreneurs, such as the young property tycoons Candy and Candy, into multi-millionaires almost overnight.

For Russian women London’s luxury shops became the magnet for this ‘rouble revolution’, with Harrods the favourite. Many Russian wives - and probably their daughters as well - would no doubt love their husbands to buy it. There is a joke that Russian émigrés like to tell. On his deathbed a wealthy Russian summons his wife to his side. ‘Olga, when I die, will you promise that you will do something for me? Promise that you will bury me in Harrods.’ Shocked, his tearful wife begs him to reconsider, telling him that he is rich enough to build his own mausoleum in Moscow. ‘No, no, no,’ he interrupts. ‘Don’t you see, if I am buried in Harrods, at least I know you will visit me at least once a week.’ A close second to Harrods is Harvey Nichols, just up the road, where, at the height of the London boom, they employed six Russian-speaking assistants on its five shop floors.

For specialized jewellery the oligarchs’ wives and mistresses would move closer to the West End. Almost every shop in Old Bond Street started to employ a Russian speaker, while top jewellers like Asprey and Theo Fennell attributed their increase in profits from the late 1990s to their expanding Russian client base and their taste for expensive one-off designer pieces. Russian wives would think nothing of buying a £5,000 alligatorskin bag and a £90,000 diamond ring. ‘They are like children in a sweet shop,’ observed one employee.

After a morning being chauffeured around their favourite fashion stores, the wives and daughters would retreat for lunch to Roka in Charlotte Street, the Russian-style tearoom and restaurant, Troika, in Primrose Hill, or Harvey Nichols’ Fifth Floor Restaurant. Their husbands preferred the bars at the Dorchester and Lanesborough hotels for early evening drinks. Then it was dinner at the most expensive, exclusive restaurants, notably Le Gavroche and Cipriani in Mayfair. Even being halfway across the world was not a problem. Late one afternoon Roman Abramovich was in Baku in Azerbaijan and told his aide that he wanted sushi for dinner. The aide ordered £1,200 worth of sushi from Ubon in Canary Wharf, the sister restaurant of Nobu, the fashionable Japanese Park Lane restaurant. It was then collected by limousine, driven to Luton Airport, and flown 3,000 miles by private jet to Abramovich in Azerbaijan.

(#litres_trial_promo) At an estimated total cost of £40,000, it must rank as the most expensive takeaway in history.

Behind the glitz, the glamour, and the wealth lies another side of the Russian invasion. Their arrival may have transformed London financially, but it has also turned Britain’s capital into a murky outpost of Moscow. While the tycoons have been applauded by the City, luxury goods manufacturers, and property magnates, they hardly represent a harmonious community. Behind the mass spending sprees lies a much more sinister world of bitter personal feuds. Many of the Russians are at war with each other as well as with the Russian state. As a result, former friends and business partners have become sworn public enemies.

At issue is the ownership of billions of pounds’ worth of assets.‘They are ruthless,’ said one who has had regular business dealings with the wealthiest Russians. ‘Their word means nothing. They will shaft you if they are given half a chance. It is the law of the jungle. Many of them owe huge sums of money to others.’

Their presence, then, has also introduced to Britain some of the uglier elements of the Russian state. ‘As soon as the oligarchs arrived, so the politics followed them. That is why they all take such elaborate and expensive security precautions,’ another businessman explained.

The cut-throat political and business battles being fought for control of the nation’s vast oil, gas, and mineral resources were once confined to Russia itself. Gradually, however, those bitter corporate and personal wars spilt over into Britain. For a while they went unnoticed, at least by the press and the public, if not by the security services. It was only in December 2006, after the former Russian state security officer turned dissident, Alexander Litvinenko, died a long, painful, and public death in a London hospital as a result of polonium-210 poisoning that the implications of Britain’s wooing of Russian billionaires and dissidents became fully apparent. The British government wanted their money but only if they kept their acrimonious internal battles at the border. Litvinenko’s murder exposed the frailty of this strategy of benign tolerance.

As one Russian who personally knows several oligarchs put it, ‘The UK government may not care how these guys made their money or what they get up to as long as they don’t bring their dubious activities into Britain. But we can’t have it both ways. We can’t let them in and expect the seedy elements to stop short of the English Channel.’

The country’s leading expert on Russian history, Professor Robert Service of St Antony’s College, Oxford, agrees: ‘The British government has collaborated with the City of London in offering a haven for businessmen from Russia who need to expatriate their money. More circumspect, New York and Stuttgart have failed to compete in pursuit of Russian capital. Britain asks few questions about the provenance of new Russian wealth. Hence the hitmen who keep on arriving on our shores to settle accounts by violent means.’

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CHAPTER 2 The Russian Billionaires’ Club (#ulink_6cd926a8-7149-5faf-baad-46b92db55787)

‘What is hard to dispute is that, while hundreds of people became seriously rich, 150 million Russians now live in a country which sold its mineral wealth for a mess of pottage’

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- DOMINIC MIDGLEY and CHRIS HUTCHINS, 2005

IN 2002 THE RUSSIAN FILM Oligarkh was released. Its main character, Platon Makovsky (Platon is the Russian name for Plato), was a young, idealistic academic who abandoned his studies for the shady world of post-Soviet-era business. Platon devised a series of questionable deals by which he outfoxed his opponents: the Russian secret service. First, he rapidly became the richest man in Russia with financial and political power equal to the state. Then he ended up as the government’s rival and sworn enemy.

Set during the economic convulsions that followed the collapse of communism, Oligarkh was a graphic, if fictional, account of a small group of businessmen who acquired the nation’s wealth. But the film also presented the characters as visionaries who provided the lifeblood of a country paralyzed by fear of change. As the New Yorker noted:

Once a freedom-loving idealist, Platon used his genius to become a monster, unhesitatingly sacrificing his ideals and his closest friends. This is the tragedy of this super-talented individual who embodies all that is most creative in the new Russia and, at the same time, all which is worst for the country that he privatised for his own profit.

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Based on the novel Bolshaya Paika (The Lion’s Share) written by Yuli Dubov, who went on to work for Berezovsky, the film broke Russian box-office records and drew gasps from the audience at the scenes of obscene private opulence. It has been broadly compared to the early years of one of the country’s most notorious oligarchs: Boris Berezovsky. Played by Russian sex symbol Vladimir Mashkov, the leading character was portrayed sympathetically as a freedom-loving patriot who proclaimed at one point that he would rather go to jail than leave Russia.

Although there were scenes of armed standoffs, the plot mostly glossed over the methods by which such a small clique made such huge fortunes so quickly. Berezovsky accepted that the film was based - if somewhat loosely - on his own early life. He invited the director to his London home for a viewing of the film and told the BBC, ‘As a work of art I think it is primitive. But I appreciate the effort to understand people like me. It is the first attempt in recent Russian cinema to understand the motivations of those at the peak of power, who drive reforms and make changes rather than cope with them.’

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As they started to beat a path to London, and as their reputations grew, so the new breed of super-rich Russians began to intrigue the British public: ‘We like to follow them because we are astonished at how people who not that long ago were queuing for bread are now able to outbid the rest of the world’s super-rich for Britain’s finest houses,’ one Mayfair property agent told us.

In his early sixties, Berezovsky is old enough to remember the bread queues in his own country, but such a modest lifestyle did not extend into his adult years. The man once known as the ‘Grey Cardinal’ because of his dominating influence at the Kremlin was not shy when it came to spending his fortune. In 1995 he bought himself a palatial residence outside Moscow, complete with servants, and accumulated a fleet of sports cars. He acquired an interest in fine wine and smoked only the best cigars. His brazen lifestyle soon became the stuff of legend. Here was a man with a way of life that had once been the province only of the Russian aristocracy before the Revolution.