The New Tsar (64 page)

Putin’s attention to Sochi became so obsessive during his term as prime minister that the Olympics were called his pet project. It was not only a manifestation of his power, but also an instrument for keeping it. He had appointed one of his closest and most trusted advisers, Dmitri Kozak, to manage the project, and he created a new state company, Olympstroi, to build the venues that Sochi needed. By decree, Putin suspended legal and legislative oversight of the construction, including questions of cost and the environmental impact in an area that UNESCO had designated for protected status as one of “the only large mountain area in Europe that has not experienced significant human impact.”
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He also maintained formal control over the distribution of the contracts awarded to build the Olympic venues. He sat on the supervisory board of the state development agency, Vnesheconombank, which would end up providing the credits for the vast majority of the projects, whose contractors were also decided on by Putin. At Gazprom’s groundbreaking ceremony, little was said about the companies that would build the plant or the pipeline—and nothing about the men who owned them. The contractor commissioned to build the pipeline was called Stroygazmontazh, which had not even existed until the year before. The company had emerged from the economic crisis in 2008, snatching up, for $400 million, various Gazprom subsidiaries and subcontractors that had built the country’s vast network of pipelines. The man behind Stroygazmontazh happened to be Putin’s judo sparring partner from his youth, Arkady Rotenberg.

By now, Rotenberg had parlayed his role in the state vodka monopoly,
Rospiritprom, into a fortune. (One of his factories even produced a new brand, Putinka, a playful diminutive on Putin’s name, which soon became one of the most popular and lucrative brands in Russia.
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) Rotenberg’s entry into the pipeline business made him wealthy on a whole new scale. Soon many of Gazprom’s expansion projects went to his company—from the construction of North Stream, the pipeline that had entangled Gerhard Schröder in scandal, to the pipeline that would provide heat to the new island complex Putin was erecting in Vladivostok. In 2010 Rotenberg and his brother, Boris, occupied the final two spots on
Forbes
’s list of the hundred richest Russians, worth $700 million each. Arkady Rotenberg was so reclusive that he did not give an interview until his appearance among Russia’s wealthiest began to raise speculation about the remarkable source of his wealth. “We didn’t just come off the streets,” he acknowledged in an interview with
Kommersant
.
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Putin’s megaprojects only propelled Rotenberg’s rise. In 2010, with his son, he took over the company building the power plant above the future Olympic Village, and received contract after contract for the games—twenty-one in all, worth nearly $7 billion, an amount equivalent to the entire cost of the 2010 Winter Olympics in Vancouver. He did not deny that his friendship with Putin had helped his meteoric rise, but he described their relationship as a duty, a burden, and as their judo coach had said, a matter of trust. “Knowing government officials of that high a level hasn’t hurt anyone, but it certainly hasn’t helped everyone either,” he told the newspaper. “It’s not a guarantee. I repeat, Putin has many more friends than those who are today famous and successful. Moreover, everyone for some reason forgets about the huge responsibility of such a friendship. For me, it is especially a responsibility. I try to behave in a way that I would never betray him.”

As Putin’s government parceled out contracts without public tenders and public scrutiny, the overwhelming majority went to those, like Rotenberg, whom Putin had elevated. Russian Railways, headed by Vladimir Yakunin, oversaw the single largest—and ultimately most expensive—project: the railroad spur that connected the coast to the mountains where the skiing events would be held. The project, called the “combined road,” was at once an engineering marvel that overcame enormous geological challenges and, to critics, a boondoggle that created an environmental calamity in a once largely undisturbed valley. The railroad courses up the left bank of the Mzymta River, named after the word for “wild” in the lost Ubykh language that was spoken in the mountains
before the Russian Empire conquered the region in the nineteenth century. The highway ran parallel to it and an old two-lane road on the right bank. The river gorge is so narrow in places that nearly twenty-four of the railroad’s thirty miles had to run through tunnels (twelve in all, including one nearly three miles long) or over bridges, hundreds of piers of which were driven into the river or its banks, irreparably altering its wild state. Environmentalists mounted a campaign to challenge the project, but Putin had also suspended the laws that would have normally blocked the work; environmentalists who protested were harassed and ultimately jailed. Russian Railways subcontracted much of the work to companies that were also linked to Putin’s friends, including the bridge builder, SK Most. A majority share of that company was subsequently purchased by Gennady Timchenko.

From the start, the Olympic construction was bedeviled by delays and soon by spiraling costs, forcing Putin to intervene, at times forcefully, to keep the project moving forward. Three times Putin fired the directors of Olympstroi, ostensibly because he was frustrated by slow progress and cost overruns. The priority Putin placed on the games invited the huge cost overruns—it had become so urgent a priority that no expense was spared and much was skimmed off the top. Because the allocation of contracts was so opaque, there was little accountability. A 2009 effort by the Communists in the Duma to impose oversight over the spiraling costs was blocked by United Russia.

There was ample evidence of corruption, with huge kickbacks factored into the contracts, but despite publicly chiding officials about the costs and dangers of corruption, Putin did nothing to punish it, even when it was exposed. In 2009, a Moscow businessman, Valery Morozov, complained publicly that an official in the Kremlin’s Office of Presidential Affairs, Vladimir Leshchevsky, had shaken him down for 12 percent of a $500 million contract to refurbish a government-owned sanatorium in Sochi. He paid either in cash or through payments to an offshore company, but when he felt he was being squeezed out of the deal, he went to the police, who arranged a sting at Slivovitsa, a beer restaurant not far from the Kremlin. He even wore a hidden camera in his belt to record the last cash installment of $5 million. Leshchevsky took the cash but slipped away without being arrested. Frustrated by the failed sting, Morozov went public, appealing directly to Dmitri Medvedev’s office and indirectly through the British and Russian press. Medvedev announced an investigation, but it quietly died two years later.
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Instead
prosecutors opened an investigation into Morozov’s company. Morozov fled to Britain and detailed his accusations in a lengthy application for political asylum, which he received. The lesson was clear for anyone who dared challenge the system.

—

O
ne man who did, Sergei Magnitsky, died in a cell in the Matrosskaya Tishina prison in Moscow on November 16, 2009. He had been transferred there for emergency medical treatment for pancreatitis and cholecystitis. He had already been in prison for nearly a year—the maximum he could be held without trial—on charges involving a massive tax fraud that he had uncovered and reported to the authorities. Instead of taking the ailing man to the prison’s hospital, eight guards took him to an isolation cell, handcuffed him, and beat him with batons. He was only thirty-seven, an auditor so unprepossessing that no one would mistake him for a radical threatening Putin’s system. He represented the post-Soviet generation that had come of age in the new Russia, highly educated and professional, a father of two, who believed in “the dictatorship of law” that Putin promised—as well as the end of “legal nihilism” that Medvedev had. After his arrest in 2008, he was sure the law would ultimately protect him. Instead he spent week after week transferred from dirty cell to dirty cell, allowed to see his wife and mother only once while in detention. He kept a meticulous diary of the abuses he experienced, as well as the steady decline of his health. To pass time, he read Shakespeare’s tragedies.
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His treatment in prison and finally his death might have been soon forgotten, as had so many others in Russia’s horrid judicial system, where five thousand prisoners died that year, but Magnitsky had worked for a powerful patron, William Browder, once the country’s most prominent foreign investor. Browder had been an early cheerleader for Putin’s presidency, believing in the economic reforms he pledged, but by then he had become one of its most embittered foes.

Browder had amassed a fortune investing in shares in Russian companies and then using those shareholder stakes to lobby for good corporate governance and transparency. He was brash and aggressive, often suing companies, and though he almost always lost in court, he felt he shared a common goal with Putin to make Russia a truly competitive economy after the corrupted oligarchy of the 1990s. In 2005, however, he was unexpectedly turned away at the airport in Moscow, his visa revoked as a matter of national security. Browder’s aggressive investment strategy had crossed some line—perhaps involving Gazprom or Surgutneftegaz,
both with close links to Putin—but he would never know which one for certain. He initially hoped his deportation was a mistake that would be promptly sorted out. He appealed to the men he believed were his allies in the Kremlin, but by 2007, prosecutors had turned their attention to his company’s offices in Moscow, and Browder began quietly divesting the assets of his investment fund, Hermitage Capital, and moving them to London. That June two dozen officers from the Interior Ministry raided Hermitage’s skeletal office in Moscow and seized the company’s corporate records: the certificates and stamps for the holding companies that had made up its portfolio.

By the end of the year three of the companies had been mysteriously reregistered under new owners, all of them convicted criminals. These owners then applied for $230 million in tax refunds, which were granted on a single day in December. Browder turned to a law firm in Moscow, Firestone Duncan, to figure out what had happened. The accountant who untangled the convoluted scheme was Sergei Magnitsky. He testified before the state’s investigative committee, identifying the Interior Ministry officers, judges, and tax inspectors who had orchestrated the elaborate theft of the company seals and the subsequent tax fraud. The ministry ordered an investigation into the theft—and assigned as the lead investigator the major whom Magnitsky had accused of orchestrating it, Artyom Kuznetsov. Magnitsky was arrested eighteen days later.

Magnitsky’s death deeply shocked Russia’s elite. They had long been inured to the harsh measures used against political activists and wayward businessmen, but Magnitsky was neither. Even if Browder posed a threat to someone’s powerful interests, Magnitsky was clearly a collateral victim. His death exposed a sweeping web of abuse and lies—about the case he investigated, his arrest and detention, the failure to treat his deteriorating health, the final beating that killed him. Dmitri Medvedev, too, seemed shocked; few cases illustrated as well the “legal nihilism” that he believed was stifling Russia’s economic future. He ordered the prosecutor general to investigate and formed a working group to review the case independently, appointing prominent rights advocates whom Putin had increasingly marginalized when he was in the Kremlin. In December Medvedev dismissed twenty officials of the prison service, though most came from faraway regions; only one had any connection to Magnitsky’s treatment in detention. Meanwhile, Browder poured his resources into tracing the proceeds from the $230 million in tax receipts. The lead investigator had purchased two apartments worth more than $2 million
(registered in his parents’ names), as well as a Mercedes-Benz, a Range Rover, and a Land Rover, each worth many times more than his annual salary of $10,200. The woman in the tax office who had approved the rebates had an estate in Moscow, a seaside villa in Dubai, and $11 million in cash in offshore accounts in her husband’s name, according to Browder’s investigators. The bureaucrats involved lived so far beyond their official means that it was clear that the embezzlement from Hermitage had been replicated in hundreds, perhaps thousands, of cases. Magnitsky had revealed not just the corrupted acts of a few officials but the corruption of the entire system.

For Medvedev, coming as it did only months after his “Russia, Forward!” exhortations, the case could have been an opportunity to set an example by punishing those involved in the embezzlement and the death of an innocent accountant. The official investigation, however, dragged on in silence, even as Browder made the case an international cause célèbre, petitioning the United States Congress and parliaments in Europe to impose sanctions on sixty people who had been involved. On the eve of the first anniversary of Magnitsky’s death, the prosecutor’s office at last announced the conclusion of its investigation, and it was as Kafkaesque as anything Medvedev had inveighed against: Magnitsky, the prosecutors announced triumphantly, had masterminded the embezzlement he uncovered.

It took nearly two years for the working group Medvedev had commissioned to present its final report. Its principal authors did so at a meeting with Medvedev in the Kremlin, concluding that his arrest had been unlawful, his death a crime, the investigation a cover-up, and the courts willing collaborators. Medvedev acknowledged in the meeting that crimes had been committed, but he was powerless to do anything about it. The next day the Ministry of Internal Affairs, ostensibly responsible to him as president and commander in chief, dismissed the group’s report as irrelevant. Then the prosecutor’s office announced that after a thorough investigation, it would reopen the criminal case against Magnitsky and charge him with tax fraud. Not even during the worst show trials of the Great Terror in the 1930s had the authorities put a dead man on trial. They would even call his mother to testify in court.