For a few days each winter, political leaders, the super-rich and a scattering
of conscientious rock stars congregate in the Swiss resort of Davos for a
summit. Last January among their ranks was Oleg Deripaska, the Russian
tycoon.
Although the aluminium oligarch – who rose from being plant manager to
billionaire in less than a decade – is thought to own a property in nearby
Klosters, he wanted a more local base. His solution: he simply bought
another house in Davos where he could play host to key contacts.
His dramatic rise to prominence is partly attributed to a keen eye for
influential figures who can help his business interests and enhance or
protect his reputation. He has met Tony Blair and John McCain, the
Republican presidential candidate, counts Nat Rothschild, the banking heir,
as a business associate and once hired Bob Dole, the retired American
senator, to lobby on his behalf.
In Davos one of those he met was Peter Mandelson, then the European Union
commissioner for trade and now Britain’s secretary of state for business.
This was not their first encounter, but one of a series of meetings between
the two men around the world. As The Sunday Times has previously revealed,
Mandelson – according to one authoritative source – stayed on Deripaska’s
yacht, the Queen K.
Yesterday, in a letter to The Times, Mandelson admitted that he first met
Deripaska in 2004. Although he does not reveal where or why he met him, it
is a significant admission because a spokesman for the business secretary
initially told The Sunday Times that he had met Deripaska only at a few
“social gatherings” in 2006 and 2007. “This is not the case,” Mandelson
admitted in his letter yesterday. “To the best of my recollection we first
met in 2004 and I met him several times subsequently.”
It is not the first time that Mandelson’s spokesmen have given less than a
full account. When asked two weeks ago about hospitality on the Queen K,
Peter Power, Mandelson’s spokesman in Brussels, insisted that the then trade
commissioner – whose department was investigating one of Deripaska’s
companies – had gone on board only for a few drinks.
However, the claim subsequently emerged that he was billeted on the yacht. For
how long he may have enjoyed such luxury remains to be clarified by
Mandelson, who initially dismissed questions of any possible conflict of
interest as “muck-raking” and “innuendo”.
Those questions about possible conflict are unlikely to go away, especially
since Deripaska is facing serious financial difficulties. If he fails to
renegotiate loans, he may have to refinance $4.5 billion by the end of this
week or risk losing substantial assets. Among those he owes money to is
Royal Bank of Scotland, in which the government, including Mandelson, has a
substantial influence after bailing it out with billions of pounds of
taxpayers’ money.
Deripaska is also having to fight off a legal action brought in the London
High Court by a former associate who is claiming a significant stake of his
aluminium empire.
Not surprisingly, Mandelson is under pressure both in London and Brussels to
disclose all details of his contacts with the oligarch. As more evidence
emerges about Deripaska, the stranger it seems that Mandelson should have
chosen to accept his hospitality and agree to various meetings over the past
four years.
Documents seen by The Sunday Times, for example, say that a Russian mobster,
Anton Malevsky, was part of a protection racket involving Deripaska’s
company. Deripaska says that the arrangement was forced upon him.
The oligarch strongly denies any wrongdoing and blames the rumours that swirl
around him on enemies bent on ruining his reputation. Those enemies have
been busy. The allegations about his alleged business practices are
documented in a trail of litigation from New York to London to Geneva.
Deripaska was banned from entering the United States after the authorities
there revoked his visa. The Sunday Times can reveal that he also has no visa
for Britain, despite buying a £25m house in London in 2004. He apparently
let his visa lapse for fear of being served legal papers in a civil dispute
if he steps foot in the country. Mandelson seems to have been unabashed by
this. Indeed, he had at least one discussion with senior officials at the
British embassy in Moscow about a “shared wish” for Deripaska to remain
involved in the UK.
How and why did two such different figures end up so entwined?
IN the mid1990s, the plains of Siberia were the battlefield for many
businessmen vying for control of the Russian aluminium industry. After
communism imploded, executives, politicians and reporters were run over,
shot, had their throats cut or died in mysterious air crashes as ruthless
entrepreneurs, corrupt officials and former KGB enforcers fought for control
of the region’s smelters.
“It was absolutely brutal,” said Stewart Lansley, the author of a forthcoming
book about London’s oligarchs. “It was like Chicago in the 1920s; only the
strongest emerged unscathed.”
Out of those aluminium wars, Deripaska proved to be one of the strongest. A
Cossack born into poverty – he apparently never knew his father – he made
his way through hard work and brains.
After graduating in quantum physics from Moscow State University, he tried his
hand as a metals trader. His big break came when he attended an aluminium
conference at the Dorchester hotel in London and met Michael Cherney, the
entrepreneur. Cherney, then 41, and his brother, Lev, were among the
kingpins of the aluminium industry and chose Deripaska to help to run their
operations in Siberia, putting him in charge of the Sayansk plant, the third
largest smelter in Russia.
“I was looking for a young, dynamic manager and I thought he fitted the bill,”
said Cherney, who moved to live outside Russia to escape the growing
violence. He and his brother were in partnership with Trans World Group, one
of the biggest aluminium companies in Russia which was owned by David and
Simon Reuben, two London-based traders.
How did Deripaska rise from a relatively junior manager in the Russian
aluminium industry to billionaire before he was 35? His answer is simple:
honest endeavour. “I’m always asked the question, how did I do it,” he has
said. “A lot of hard work. The key for me was learning the business from the
factory floor. Yes, Russian business has developed fast but there is no
miracle here. A person who studied physics can also easily learn marketing,
business and so on. It’s not rocket science.” Hard work was certainly a
factor, but so was the chaos besetting Russian business at the time. One
figure who may have played an important role was Malevsky, then reputedly
head of the Ismailovo organised crime group based in northern Moscow.
In a preliminary High Court judgment published last July, Mr Justice
Christopher Clarke said Deripaska had said that Malevsky was “engaged in a
‘protection’ racket in relation his business” but that it was a situation he
had inherited. Deripaska is reported to have said that he never wanted to be
involved with Malevsky. It was not possible, he said, to “withdraw from such
arrangements without serious consequences”. Indeed, he is said to have
claimed to a Swiss investigating magistrate on February 17, 2005 that “I
know this person [Malevsky] only by name. I have seen his name in the press”.
That account is disputed by Malevsky’s widow, who is quoted in a High Court
judgment as saying that she and her husband knew Deripaska well and had
stayed at his home. Malevsky was killed in a parachute accident in South
Africa in 2001.
“Mrs Malevsky says that [Deripaska’s statement] is completely untrue and, in
the light of her evidence, that seems likely to be so,” said Mr Justice
Clarke. Mrs Malevsky also insisted that her husband was not a gangster,
according to the judgment.
Whatever his exact links with Malevsky, Deripaska was one of the survivors of
the “aluminium wars”. In 1995 about 35 people in the metals industry died in
mysterious circumstances. Among those killed was Felix Lvov, who worked for
a metals broker. Lvov is said to have disappeared between passport control
and a boarding gate at Moscow’s Domodedovo airport. His body was dumped on a
highway outside Moscow. He had been shot.
There is no suggestion that Deripaska was in any way involved. Indeed, one
former business associate who dealt with Deripaska in Russia said he did not
believe that Deripaska was ever involved in any serious crime, despite his
links to known criminals. “Deripaska was the blue-eyed boy for the
operation,” he said. “He was the face of respectability.”
This business associate also pointed out, however, that Deripaska was
underestimated by many people. One by one his partners left the business –
some with large payouts – as Deripaska extended his control. “He is one of
the most intelligent people you’ve ever met,” said the associate. “And it’s
matched by ambition.”
In the space of a few years Deripaska took control of Cherney’s stake – which
is now the subject of the High Court action – and acquired another chunk of
empire from Roman Abramovich, the billionaire who owns Chelsea football
club, turning the Rusal company into the world’s biggest aluminium business.
As a series of former business partners challenged him in the courts,
Deripaska paid out millions to settle cases. These included a $300m suit in
Geneva brought against him by the Reuben brothers, who claimed that
Deripaska had reneged on agreements relating to the operation of the Sayansk
plant in the 1990s. In total Deripaska is estimated to have spent up to
$500m on settling court actions.
Perhaps it was money well spent. By 2004 he was the king of aluminium and
reckoned to be a multi-billionaire with business contacts that included one
of the most resonant names in British banking.
DERIPASKA is believed to have first met Nat Rothschild, co-chairman of the New
York hedge fund Atticus Capital, at the five-star Le Meurice hotel in Paris
in April 2002. The occasion was a board meeting of Brasilinvest, a £500m
investment company based in Sao Paolo. Keynote speakers included President
George Bush Sr and Helmut Schmidt, the former German chancellor.
Deripaska had already served on the board of Brasilinvest for some time, while
Rothschild had just been invited to join the board for a three-year term by
the wealthy Garnero family from Brazil. “During the board meeting Nat was
introduced to Oleg and together they became good friends in their own right,"
said Mario Garnero Sr, chairman of Brasilinvest. “But I didn’t really follow
their next steps.”
The pair became close business associates. Deripaska is believed to have
helped Rothschild to find investors for Atticus Capital and to extend his
business interests. Rothschild – and his respected family name – has helped
Deripaska to gain a foothold in some of the world’s most lucrative markets.
Their joint interests now span timber, insurance, banking, mining, airports,
construction and cars. Among their joint projects are plans to turn
redundant docks in Montenegro into a swanky marina for the yachts of the
super-rich.
Bruce Marks, a Philadelphia-based lawyer who represents the former business
partners who are now suing Deripaska, is not impressed by the wealthy and
distinguished names in Deripaska’s orbit. He said: “Deripaska is trying to
buy legitimacy. He is mixing with powerful people in the worlds of politics
and finance to improve his reputation.”
Marks represents plaintiffs in the Delaware courts who accuse Deripaska, along
with a number of other business associates, of offences that include bribery
and money laundering. A statement issued by Deripaska this weekend said the
claims were “vexatious” and similar allegations had been dismissed in the
New York courts. But clearly some American officials have concerns because,
as already stated, he has been denied a US visa.
When he was initially barred from America, Deripaska hired Bob Dole, the
former presidential candidate and attorney, to fight his case. He was
successful in obtaining a visa, only to have it revoked after he was
reportedly interviewed by the FBI during a visit to the United States. No
official reasons have been given.
It is hard to believe that these concerns were not known to both the British
and EU authorities. Yet Mandelson appears to have had no reservations about
flying to Moscow in Rothschild’s private jet, dining with Deripaska and
later staying on his yacht.
When The Sunday Times first questioned Mandelson about his meeting with
Deripaska in Corfu this summer, Power, his spokesman, said: “He exercised
his role as commissioner despite his friendship with Mr Deripaska and that
is the essence of this.” He said they had met only at a “few social
gatherings” in 2006 and 2007.
Mandelson would not confirm whether he had stayed on the Queen K or where or
when he had previously met Deripaska. His spokesman insisted that Mandelson
had never had a “discussion with Mr Deripaska about aluminium or any other
matter relating to the EU”.
Further investigations by The Sunday Times began to cast a fascinating light
on Mandelson’s dealings with Deripaska and Rothschild. Uncomfortable in the
spotlight, they appear to have blamed George Osborne, the Tory shadow
chancellor, for bringing them unwelcome attention. Osborne had also been
visiting Corfu and had met Deripaska at the same time as Mandelson. The
business secretary blamed Osborne for a Sunday Times report that Mandelson
had “dripped pure poison” about Gordon Brown. As The Sunday Times revealed
further details about Mandelson, Deripaska and Rothschild, someone decided
on retaliation.
Last Tuesday Rothschild, described by some as an impetuous character, wrote a
letter to The Times alleging that the shadow chancellor had discussed
soliciting a donation from Deripaska, despite a ban on foreign donations. In
the event no donation was made and the Electoral Commission said no rules
had been broken. But in the ensuing media furore Mandelson quietly slipped
out of the spotlight.
A source close to the Rothschild family said Nat had insisted that he had not
spoken to Mandelson before writing the letter, but the family believe it was
probably prompted by the business secretary “waving his wand”.
The source said: “We all see where Mandelson is coming from, but there is a
risk for him that he will shoot himself in the foot. It’s beginning to
damage him again because he has close links with Deripaska.”
Sure enough, as the row over Osborne has died down, attention has returned
again to Mandelson and Deripaska, which may be exactly what the Russian does
not want. After building his private empire, the billionaire had planned to
cash in part of his wealth by floating his company on the London stock
exchange. Advisers were hired and preparations were made for a float last
year.
A financial source said last week there had been questions about Deripaska’s
background. Draft documents sent to the Financial Services Authority (FSA),
the City regulator, on behalf of the company acknowledged that Deripaska’s
past and his court action with Cherney might be viewed as a possible
obstacle for the flotation. A senior City source said: “One of the issues
was whether Deripaska would pass elegibility tests conducted by the FSA on a
major shareholder. I think the British were keen to have Rusal listed and it
would have been okay, but it was flagged as a possible risk.”
It was not regarded as a serious problem, however. In the event, the formal
application for a listing was never submitted. Rusal decided to postpone a
flotation after considering that other markets might be more suitable.
Since then the credit crunch has been hitting Deripaska’s interests hard. His
business empire has seen billions of dollars obliterated as stock markets
have crashed around the world. Shares that he bought in a company called
Norilsk Nickel have plummeted. He borrowed money to buy the stake in the
firm, using the shares as collateral. As their value has fallen, the lenders
are asking him to put up more money.
This weekend he is trying to refinance the $4.5 billion in loans from western
banks. If he cannot do so, the banks may take the shares. At a recent dinner
a banker with one of the leading lenders to Deripaska revealed that his bank
was having a huge internal debate about what to do about their loan to him.
The bank feared that if it asked Deripaska to put up more money, or called
the loan in, then other Russian banks would also call their loans in – and
everything would fall apart.
Many suspect that the Kremlin will come to Deripaska’s aid. Otherwise the
oligarch may face further difficulties. The Financial Times calculates that
if Deripaska fails to solve his immediate problems over the $4.5 billion in
loans, he could face the risk of defaults on a further $10 billion in
borrowings. Russia’s biggest industrial empire, the newspaper observed, is
“starting to look like a house of cards”.
Nor is Rothschild’s financial situation looking as sunny as the Corfu sojourn
might suggest. The two main funds in Atticus Capital have suffered heavy
losses estimated at about 25% and 30%, wiping out possibly $5 billion of
investors’ funds.
This week Mandelson is leading a business delegation to Moscow, keen to
“maintain political and business engagement”. He is not expected to meet
Deripaska.
In Brussels and Westminster, pressure is growing on the business secretary. A
senior source in the EU said Mandelson should produce a list of meetings
with Deripaska. “He has to set the record straight,” said the official.
There are also questions about whether Mandelson ever raised or discussed the
affairs with British officials. A well placed source in Moscow said last
week that he had discussed with senior officials in the British embassy the
“shared” interest that Deripaska should remain involved in business in this
country.
Norman Baker, the Liberal Democrat MP, has tabled a question in parliament
asking whether any intelligence gleaned by the US authorities on Deripaska
has been shared with their UK counterparts.
For his part Deripaska must be wondering whether his contacts with Mandelson
have been worthwhile.
