Another Billionaire Incurs Putin's Wrath

Another Billionaire Incurs Putin's Wrath

(Bloomberg View) -- Since Vladimir Putin came to power in Russia, people who had made billions in the murky first decade of Russian capitalism have been picked off one by one: jailed, pushed out of the country, forced to give up assets or take part in unprofitable projects. Now, apparently, it's Viktor Vekselberg's turn: An attack on some of his top managers means that repeated demonstrations of loyalty to the Kremlin are no safety guarantee.

The story goes back to July 28, 2000, when Putin held his first official meeting with the generals of Russian business. Media magnate Vladimir Gusinsky couldn't attend because he was in jail: Putin was in the process of taking away his TV station. Boris Berezovsky, whose diverse assets, including media ones, had helped Putin get elected, wasn't there either: Just a few months later, he would decide not to return to Russia from London to avoid imprisonment. Mikhail Khodorkovsky, who would later lose his oil company to the government and spend 10 years in jail, was there. So was banker Sergei Pugachev, who is now in France, having lost his Russian holdings.

Vekselberg, too, was there -- along with a number of other wealthy Russians who have fared better under Putin because they kept their heads down and paid their dues. He certainly did: The owner of a $14.2 billion fortune (according to Bloomberg Billionaires) has carefully built an image as a patriot by bringing back to Russia some of its lost treasures, such as the world's biggest collection of Fabergé imperial easter eggs and the archives of nationalist philosopher Ivan Ilyin, whom Putin likes to quote in speeches. Under President Dmitri Medvedev, Vekselberg took on the demanding volunteer job of running Medvedev's pet project, the Skolkovo Innovation Center, which the Kremlin wanted to turn into a Russian version of Silicon Valley. Vekselberg, in other words, was as loyal as they came.

On Monday, however, the government's investigative committee detained two of the billionaire's closest associates, Boris Vainzikher and Yevgeny Olkhovik, and placed a third man -- Mikhail Slobodin -- on its wanted list. Slobodin, who is chief executive officer of VimpelCom, one of Russia's three big mobile operators, and a board member in a Vekselberg company, energy provider T Plus, only avoided arrest because he was overseas. It's not clear whether he will return to Russia to face charges, but he resigned from VimpelCom immediately after news of the arrests broke.

All three managers are part of Russia's corporate elite. Olkhovik, a long-standing Vekselberg business associate, was managing director of the billionaire's diversified holding company Renova. Vainzikher ran T Plus, which controls 7 percent of Russia's power generation and 10 percent of the national heating market.

The charges against them seem to be direct consequences of Putin's anger. On August 8, Sergei Gaplikov, acting governor of the northern Komi region, wrote Putin a letter complaining that a heating plant in the city of Vokruta, supplying 80,000 people with heat, was at the point of going offline from under-investment. Gaplikov wrote that the plant's owner, T Plus, was trying to sell it off because the city's heating distribution network hadn't been paying it for months. The heating network, the acting governor pointed out, was "affiliated" with a certain offshore company.

Putin got the hint. A former governor of Komi, Vyacheslav Gaizer, was arrested a year ago, along with a number of his staffers, on charges of setting up a corrupt organization in the region. To someone as familiar as Putin with how the Russian system works, no explanation would be necessary: Since utility tariffs are regulated by the Russian regions, a heating company can get a corrupt governor to set high tariffs. If the regional leadership changes, though, extracting payments at the old price may become a problem.

Angrily, Putin wrote in large script across the governor's entire letter: "The crookery and irresponsibility must be cut short." The investigation was quick, and the three managers have been accused of bribing the Gaizer administration in Komi to set high heating tariffs. The bureaucrats allegedly siphoned off part of the margins to offshore companies. Aware of the investigators' feverish activity, T Plus said in late August that it was stepping up investment in the Vorkuta heating plant. But by then, it was too late.

Putin's approach to corruption is to blame both corrupt bureaucrats and the businessmen who bribe them. "The business community goes down this path, trying to gain an edge over competitors, including those vying for state contracts," Putin said in 2012, responding to a famous musician's open letter that criticized him for allowing corruption to flourish. "The whole society's mentality has to change."

So, in Putin's eyes, a governor with the power to regulate prices and a business executive who allegedly gives him a kickback are equally guilty of corruption. The executives won't get much sympathy from ordinary Russians: Fewer than half believe that big business plays a positive role in Russia. Ahead of parliamentary elections this month, the new developments in the Komi corruption scandal may play into the hands of the pro-Putin United Russia party -- even though Gaizer was a ranking member.

Vekselberg, for his part, has much to worry about. The arrest of close associates and searches at the head office are the usual warnings that the Kremlin wants something valuable from him. It may soon transpire, for example, that T Plus assets could be useful to some state company or one of Putin's billionaire friends.

A billionaire who can quickly understand what's needed usually keeps his wealth. It took a series of office searches for Mikhail Prokhorov, the owner of the Brooklyn Nets, to realize his media company, RBC, had taken its freedom to investigate Putin's family and cronies too far. He brought in new editors, and no further reprisals followed.

Like his peers, Vekselberg is but a hostage to the Kremlin, which can redistribute wealth as it sees fit. That's why Putin's view of corruption is hypocritical: In dealing with an all-powerful government apparatus, it's hardly an option not to pay people off. 

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