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Roman Abramovich’s Testimony Shows How Crazy Business Was In Russia

By on November 3, 2011

The court case between oligarches Boris Berezovsky and Roman Abramovich is worth watching for a number of reasons.

Firstly, at $6.5 billion, the lawsuit is the biggest personal suit in history. Secondly, despite concerning events that took palce over ten years ago in Russia, the case is being held in London.

Thirdly, the court case has forced the normally private Roman Abramovich to talk about his rise to power in 1990s Russia, a place where the normal rules broke down and a free for all power grab emerged in its place.

We’ve taken a few key passages from Ambramovich’s witness statement that show his rise to power.

Humble Beginnings

“I am a Russian citizen, residing in Russia. I was born in Saratov in the former USSR, as it then was. I lost both parents at at a young age and was brought up by relatives, initially in the Komi Republic and then later in Moscow. I consider Moscow as my motherland.”

An Education Halted By Military Service

“After graduating from high school, I was admitted to the Industrial Institute of Ukhta in the city of Ukhta. During my studies there, I was drafted into the army and returned to school upon discharge; however, I never graduated and went into business in 1987.”

The Beginnings Of An Empire

“My business career began in 1987, when I was employed as a mechanic in the construction office No. 122 of Mosspetmonstazh. It was at the time that the Soviet government under Mr. Mikhail Gorbachev announced the start of “perestroika”, allowing for the establishment of small businesses known as “Co-operatives”.”

“I was one of the country’s early entrepreneurs, serving from 1989 through 1991 as chairman of the cooperative “Uyat [Comford]”, which specialized in the manufacture of plastic toys for children.”

Ambramovich’s Current Business Interests

“Business-wise, I am a portfolio investor at the moment, and also pay considerable attention to athletic and charitable projects and support artistic causes. Inspired by my love of football, after acquiring Chelsea Football Club in 2003, I established in 2004 the National Academy of Football (“NAF”), a foundation that seeked to help promote football among children.

He Explains His Discomfort With The Court Case

“The claims in these proceedings have virtually no connection with England. I instructed my lawyers not to challenge the jurisdiction of the English courts in this case because Mr Berezovsky had been granted refugee status in the UK, having been convicted of defrauding money from he Russian company Aeroflot.

“My understanding was that it would not have been practically possible in those circumstances for him to bring the proceedings in Russia or attend to give witness evidence at any trial that took place there.”

On His Relationship With Berezovsky

“Mr. Berezovsky has said that there was a time when I was his trusted and close business colleague. With the benefit of hindsight, I hesitate to call him a former close “friend” although I felt a strong emotional bond to him and I had previously always respected him.”

“For the reasons I explain below, our relationship may not qualify as friendship or regular business association. He did not regard me as an equal. Our relationship was a peculiarly Russian relationship typical for a Russia’s post-communist history. The Russian word to describe the nature of his relationship with me is “krysha [roof]” A person providing krysha to another man was a person who acted as his protector. Kryshna could take the form of political or physical protection.”

On Doing Business In Russia In The 1990s

“It was not possible to achieve [my business interests] in Russia at that time without the help of a person who had the appropriate political connections.

“Additionally, it was also necessary at that time to have “physical” protection as anyone having access to businesses capable of generating strong cash-flows was vulnerable to criminal interference, including potential violence.”

On The Shift To A Market Economy

“A number of major industries, particularly aluminium, were under the influence of criminal gangs who often used intimidation and murder as tools to extract money from the enterprises. Where foreign investors were allowed the opportunity to invest in Russian businesses, they generally would not do so because of the risks. The civil law had not kept pace with economic developments. The court system was unreliable and inadequate to enforce any rights under civil law.

“These were exciting times to be an entrepreneur but were also dangerous and risky times. However, on the other hand opportunities abounded for people like myself.”

Why Having A Krysha Is Expensive

“…Over time Mr Berezovsky also asked me to assist him with other expense he incurred. For example, I recall paying occasional credit card bills of his girlfriend at the time…”

“If Mr Berezovsky needed to charter a plane in order to fly somewhere, or wanted a yacht to be chartered, he would ask me to pay for it. It was always Mr Berezocksy who decided what expenses were necessary for him to maintain his image and influential position. I suspect that there were times when almost all of Mr Berezovsky’s personal expenses were subsidized by me.”

Putin enters the picture…

“At the end of 1999, Mr Yeltsin retired and Mr Putin became acting President. At first, Mr Berezovsky was please about this and regarded the appointment as one of the many things for which he deserved credit […] However, Mr Berezovsky was soon to become dissatisfied when he discovered that Mr Putin was not a person whom one could readily influence.

“The relationship with President Putin deteriorated over a fairly short period of time. To satisfy his political ambitions, Mr Berezovsky took every opportunity to criticize the country’s leadership, including tragic events.”

Threats from Chechnya?

“Although Mr Berezovsky never directly threatened me, his bragging about the methods he resorted to when dealing with his enemies and his close connections with powerful Chechens had a strong influence on my thinking.”

On The Move Into The “Violent And Unstable” Aluminum Industry

“By late 1999 I knew most, if not all, the major players in the aluminum industry, and that a number of them wanted to get out […] I still was not keen to get involved in the industry, given its violent and unstable history. Criminal groups were fighting fierce battles for control of the profits generated by the aluminum industry and dozens of businessmen had been killed in this struggle for control”

[Abramovich went on to enter the industry, and made a fortune from the company RUSAL. He used a different “krysha” to provide physical protection and put out “fires”]