Vladimir Putin (Illustration by Frank Hulley-Jones/The Washington Post; Photograph by Alexey Nikolsky/Sputnik/AFP/Getty Images)
On the February day he launched the invasion of Ukraine, Russian President Vladimir Putin called to the Kremlin a group of his nation’s wealthiest businessmen.
The invasion was a “necessary measure,” Putin told the group, according to news agencies. Alluding to the economic sanctions they would probably face from the United States and European Union, he added, “We all understand the world we live in.”
Each of the invitees was a stalwart of the Russian economy. Fourteen have ranked as billionaires. Their companies represented the nation’s key industries — oil and gas, banking, chemicals. Some have met with Putin for more than two decades.
Yet despite their ties to Putin and standing within Russia, many of them had been moving their wealth out of the country for years, documents show. Of the 37 attendees, more than half are linked directly or through a close relative to offshore companies that handled transactions worth hundreds of millions of dollars, making financial investments, issuing loans and forming family trusts, according to a Washington Post tally based on secret documents in a pair of troves known as the Pandora Papers and Paradise Papers.
At least 21 of the participants in the Kremlin meeting or their close family members had holdings in the British Virgin Islands, Cyprus or other island jurisdictions known for financial secrecy and tax advantages, according to the documents, which were previously provided to the International Consortium of Investigative Journalists and shared with The Post. The records used in this tally span 2007 to 2018.
The prevalence of offshore holdings among those invited by Putin reflects the extent to which businessmen at the pinnacle of the Russian economy have transferred wealth out of the country and come to rely on secret arrangements that make transactions difficult to track. The use of offshore companies can protect personal fortunes from investigators, tax authorities, rival tycoons, and financial predators inside the Russian state itself.
Though created years ago for other purposes, the offshore companies also may thwart the recent economic sanctions adopted by the West to punish Putin’s allies. All but two of the businessmen who attended the Kremlin meeting have been targeted by such measures imposed by the United States, Britain and the European Union.
Putin has publicly campaigned for years against “offshorization” and linked the use of offshore companies to tax avoidance and money laundering. But he may have quietly acquiesced to the practice and even been enriched by it, some experts on the Russian economy say.
“Putin allows his close circle to tap the financial resources of state companies and the state itself,” said Julia Friedlander, a former CIA analyst and senior policy adviser in the Office of Terrorism and Financial Intelligence at the U.S. Treasury Department. “The money often ends up offshore.”
Overall, as much as $1 trillion in Russian wealth is stowed in offshore companies, according to economic studies, representing a significant share of the Russian economy. By some estimates, there is as much financial wealth held abroad by rich Russians as is held by the entire Russian population inside the country. The documents from the Pandora Papers and Paradise Papers put names to the outflow of money.
Among the attendees whose companies appear in the Pandora Papers, for example, is Vagit Alekperov, former president of Lukoil, an energy company with more than 230 filling stations in the United States. Alekperov, who resigned from the company last month after he was placed under British sanctions, owned offshore companies that made hundreds of millions of dollars in investments and loans, according to the documents. A British Virgin Islands company he owned, Topaz Opportunities Ltd., invested $130 million in a Belizean company and later lent it $60 million. Topaz subsequently issued two loans totaling $237 million to another company in the British Virgin Islands.
Andrey Akimov, the chairman of Russia’s third-largest bank, Gazprombank, was an owner of at least eight companies formed in the British Virgin Islands. One of them held $360 million in assets and was supposed to provide financing for a Moscow real estate project, according to the documents. Another held $80 million in investments and was co-owned by Marianna Chaykina, an artist who has been identified in Russian media as his romantic partner. She did not respond to a request for comment.
Herman Gref, the chief of Russia’s largest bank, Sberbank, controlled an offshore trust with companies nested within it, with assets totaling more than $54 million, the Pandora Papers show. In about 2017, a Panamanian company held by the trust lent $30.5 million to a trust benefiting Putin’s former deputy chief of staff Kirill Androsov, according to the documents.
Alekperov, Akimov, Gref and Androsov were all contacted and asked for comment, but none responded.
Yachts and planes
The number of attendees at the Feb. 24 Kremlin meeting who have offshore holdings may be higher than the tally based on the Pandora Papers and Paradise Papers, because these troves, while they contain millions of documents, offer only a partial view of the global offshore financial system.
The Pandora Papers and Paradise Papers, however, do show how the meeting participants have used offshore companies for a wide range of activities and projects.
Some use them, for example, for yachts and planes.
A yacht owned by billionaire Andrey Melnichenko — valued at an estimated $600 million — is held by a company registered in Bermuda called Valla Yachts, which turns up in the Paradise Papers. Billionaire Leonid Mikhelson’s jet, a Gulfstream G650 valued at $65 million, appears in the Paradise Papers, too, held by an Isle of Man company that was a branch of his Panama company, Golden Star Aviation Ltd.
Melnichenko did not respond to a request for comment, and Mikhelson declined to do so.
It is striking how often these wealthy Russians have joined with one another in their offshore ventures.
Petr Aven, a banker and economist who worked on Russia’s market reforms in the 1990s, for example, owned two British Virgin Islands companies with three other billionaires, the documents show.
Andrey Bokarev, president of Russia’s leading manufacturer of railway equipment and a member of the country’s Olympic committee, co-owned two British Virgin Islands companies with fellow billionaire and metals magnate Iskandar Makhmudov, according to the documents.
Bokarev and Makhmudov did not respond to requests for comment, and Aven declined to do so.
Over the years, Putin has regularly met with wealthy Russian businessmen, including those he gathered on the day of the invasion. He began meeting with three of them — Aven, Alekperov and Vladimir Potanin — as far back as 2000, according to interviews with Putin published in a 2000 book, “First Person.”
Approximately “50 wealthy Russian businessmen … regularly meet with Putin in the Kremlin,” Aven told U.S. investigators from special counsel Robert S. Mueller III’s inquiry into Russian interference in the 2016 presidential election, according to their report.
Several of those at the Feb. 24 meeting benefited from the privatization of government assets that began with the fall of the Soviet Union, a tumultuous transfer of wealth that created a gaggle of billionaires.
Potanin was instrumental in creating the “loans for shares” program that enabled many wealthy Russians to take big stakes in government companies for relatively small investments. Aven advised the government on the transition to a market economy and has been described by the E.U. as “one of Vladimir Putin’s closest oligarchs.” Alekperov was the head of an agency at the Soviet Union’s Oil Ministry and then a deputy minister. Slightly more than a year after the fall of the Soviet Union, he became president of Lukoil.
Others at the meeting have come to prominence only more recently, hailing from technology and other fields. Some are relatives of government officials.
As wealthy and powerful as these business figures may be, however, history shows that crossing Putin can come at a cost. Most infamously, oil tycoon Mikhail Khodorkovsky, once Russia’s richest person, had opposed Putin and was jailed on tax evasion and other charges that his supporters say were politically motivated. A decade later, Putin pardoned him, and Khodorkovsky was released.
Aven told Mueller’s investigators that he considered suggestions by Putin to be orders and, according to the investigators’ report, “understood that there would be consequences for Aven if he did not follow through.”
Capital flees ‘out of fear’
A wave of capital flight from Russia began in the 1990s, as many of those who had accumulated vast wealth concluded that their assets were safer abroad. This transfer of wealth would eventually emerge as a political issue, arousing public opposition from Putin himself.
Some of the Russian money in the offshore companies was invested back into Russian firms in a financial maneuver that became known as “round-tripping.” This approach can provide tax advantages and cloak assets in secrecy that protects them from meddling by law enforcement authorities.
Capital “flees Russia primarily out of fear,” said William Spiegelberger, an American lawyer who directed the International Practice Department at Rusal, the Russian aluminum company, before it came under U.S. sanctions in 2018. “Russia is a very dangerous environment for people with money.”
Putin’s press secretary Dmitry Peskov did not respond to requests for comment.
But in speeches as far back as 2012, Putin has repeatedly highlighted — and lamented — the role of offshore companies. “The high degree of offshore investments and ownerships in the Russian economy is an absolute fact,” he said that year in an address to the Federal Assembly. He noted then that an estimated 9 of 10 “major transactions” by leading Russian companies were not regulated by Russian laws.
A year later, he raised the subject in the same forum, linking it to tax avoidance, fraud and money laundering. “It is imperative to introduce criminal liability for executives who knowingly provide false or incomplete information about the true state of banks, insurance companies, pension funds and other financial institutions,” Putin said.
And in 2014, still on the same subject, Putin encouraged people with offshore companies to return their capital to Russia, offering them full amnesty and no questions “about the sources of [their] capital and methods of its acquisition.” He said that “if a person legalizes his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not ‘put the squeeze’ on him.” Nor would that person face any action by tax authorities.
But Putin’s campaign was far from successful — as demonstrated by the number of businessmen at the Kremlin meeting who still have offshore holdings. Or perhaps, as some critics contend, his verbal attacks on offshore finance were never intended as public policy but rather were a threat he could wield over these business figures.
The United States and European governments, too, have sought to limit the role of offshore companies, sometimes with little success.
In the United States, the Corporate Transparency Act, which became law last year, will require many corporations and limited liability companies to report who their owners are. Under pressure from Britain, the British Virgin Islands has taken steps to regulate shell companies, too.
But critics say these steps have largely failed to bring transparency and accountability to the global offshore system.
The offshore financial system has “allowed Putin and his cronies to protect the wealth they’ve stolen from the lawless country they have created,” said Rep. Tom Malinowski (D-N.J.), who has proposed multiple bills seeking to tighten U.S. investment laws. “We’ve called out the corruption and human rights abuses in Russia, but we have rolled out the red carpet for the Putin cronies who profit from the corruption and abuses.”