Confessions of an oil trader: What it's like to do business with Putin's friends

The name of entrepreneur Mikhail Yuman does not ring a bell to most Russians. Unlike his key business associates, he has never been a public figure. Yet his story is a perfect illustration of how relations between the Russian business community and the state have evolved since the early 1990s. The Insider has looked into certain episodes of Mikhail’s biography and unearthed many a curious detail about the corrupt scams of Vladimir Putin's entourage, corporate wars, and the criminal side of the Russian economy.

1990s scams: Vladimir Putin and Danish Communists.

Mikhail Yuman co-founded his first business back in 1990, with the assistance of none other than Nikolai Yegorychev, member of the Central Committee of the Communist Party of the Soviet Union and former ambassador of the USSR to Denmark. The business was a Soviet-Danish woodworking enterprise called Interwood. As Mikhail told The Insider, the enterprise started interacting with Vladimir Putin almost from day one.

"As the collapse of the Soviet Union became imminent, Jeppe Strange, son of the First Secretary of Denmark's Communist Party, found himself at a crossroads. We decided to lend him a hand, founding the first joint Russian-Danish enterprise, Interwood, with two Russian top managers: Anatoly Martynenko and myself. The Danish party was represented by John Bremeskov and Jeppe Strange. A year later, we hired Danish lawyer Jeffrey Galmond to represent our interests. The Russian co-founding party was the Mezhdunarodny Dialog Association. In St. Petersburg, Interwood interacted with two companies, Feniks and Faeton. As far as I know, Martynenko worked closely with Putin and conducted all the negotiations. Feniks and Faeton were major timber exporters, and Putin was the one who okayed the shipments. The company operated until its dissolution in 1995."

In 1992, Interwood obtained a license for timber export in exchange for foods from the Committee for External Relations, which was headed by Vladimir Putin. The timber was shipped, but the foods were never delivered. This barter transaction eventually attracted scrutiny from the commission headed by People's Deputy Marina Salye, who was also a deputy at Petrosovet (St. Petersburg City Council in 1991–1993), and the Presidential Control Directorate. A number of irregularities were discovered: Interwood, a Soviet-Danish enterprise was referred to as «Soviet-Abu-Dhabi» in some of the papers; in other (judging by the address indicated in the contract with the Committee for External Relations), it was made to look like a Swedish-Russian company, even though the signing officer was the same — A. R. Molgachev. Stranger still, his signature looked different in different documents. What conclusions did the investigating team draw? There is no way of knowing — once Vladimir Putin headed the Presidential Control Directorate, the records of the audit disappeared from the archives.

Mikhail also co-founded a company called Russky Les (Russian Wood). It was involved in a similar scandal — but this one claimed lives. On March 4, 1993, one of the company's top managers was murdered in St. Petersburg upon his return from negotiations in London. In May, Mayor Anatoly Sobchak ordered AO Sea Port of St. Petersburg to unload a vessel with granulated sugar shipped from England by Russky Les «so as to exclude the risk of its unlawful seizure and withdrawal from the harbor.» The document read: «The designated officers-in-charge are Deputy Mayors Vladimir Putin and Lev Savenkov.» The sugar, however, was disappearing mysteriously right from the port, according to Sankt-Peterburgskiye Vedomosti («The sugar is melting, but it ain't getting any sweeter.» March 09, 1993). Another Mayor's Office representative tasked with guarding sugar was notorious Vitaly Mutko. The sugar was not guarded well enough, even though Mutko reported no criminal activities.

Jeppe Strange, son of Denmark's chief Communist and former CEO of the Interwood Russian-Danish enterprise, has since moved to Russia and supplied timber to IKEA in the 2000s on behalf of the Rusforest Russian-Swedish company, later taking an interest in pig farming. These days, he is into Russia’s agricultural development.

As for Jeffrey Galmond, who represented Mikhail Yuman's interests in Danish Interwood, he is more high-profile. His name was mentioned in another corruption scandal — one concerning the struggle for the telecommunications market and «St. Pete's telecom crowd,» including Minister of Communications Leonid Reyman and Vladimir Putin's spouse Lyudmila.

2000s scams: Vladimir Putin and the «telecom crowd» from St. Pete's

Back in November 1994, Jeffrey Galmond co-founded OAO Telecominvest. He was a five-percent shareholder through Vasa Invest Consulting, a Danish company later renamed to ODEM A/S; the rest of the company belonged to state-owned enterprises (St. Petersburg Telephone Communications and SPb MMT). At some point, «the state lost control over Telecominvest,» as former communications minister Leonid Reyman told Vedomosti. Ironically, Reyman was the one to have gained control over it.

Up to 2008, Galmond was believed to be the ultimate beneficiary of 59 percent in the Telecominvest Group (through the IPOC International Growth Fund), but the courts in Switzerland and the Bermuda recognized these assets as belonging to Leonid Reyman. The court in the Bermuda dissolved the IPOC Fund for involvement in illegal financial transactions. Telecominvest was the official employer of Lyudmila Putina, Vladimir's wife, as he stated in his presidential candidate declaration in 2000.

One of Telecominvest's primary assets was Megafon, a major Russian carrier, with the «telecom crowd» holding a minority stake. However, once Galmond struck a deal with Leonid Rozhetsky, Megafon's co-founder, to purchase his stake in 2001, they were about to become majority shareholders. It was the Megafon shares that triggered one of the tensest corporate wars in Russia's recent history.

Back in 2003, Megafon's co-founder Leonid Rozhetsky suddenly sold his stake in Megafon to Alfa Group instead of «the telecom crowd,» abruptly leaving Russia for Latvia, where he bought a villa. The situation was aggravated by the Alfa Group already holding a blocking stake in Beeline, another carrier. This triggered a decade-long war over Megafon between Alfa and Reyman. In 2004, a case was initiated against Rozhetsky in Russia, and he retaliated by suing Reyman in the USA in 2007. In 2008, he disappeared (presumably, he was abducted and murdered). His body was not discovered until 2013.

Mikhail Yuman found himself at the epicenter of these events and has shared a number of details with The Insider. He enjoyed the confidence of Jeffrey Galmond (de facto Leonid Reyman's asset manager). They sometimes spent weekends together and even celebrated the New Year. Mr. Galmond shared some of the details about his business activities with Mikhail.

He drew a scheme on a piece of paper to explain how one launders money through the Bermuda and how to transfer and withdraw money from there

"When Galmond was just starting his Russian activities, we flew in the first class from Moscow. Seated next to him, I asked: ‘So what is it that you do? You're a lawyer offering legal advice, I get it, but what's your specific expertise?’ In response, he drew a scheme on a piece of paper to explain how one launders money through the Bermuda and how to transfer and withdraw money from there. Frankly, I could do without such a scheme because Denmark is a transparent enough economy to earn money legally. Back then, offshore schemes had just started to take off. I folded that A4 piece of paper, pocketed it, and forgot all about it."

Later, the sketch played a crucial part in the litigation against Galmond and Reyman, but Mikhail had no way of knowing about it back then. In 2005, when the corporate war had already broken out, he was approached by Alfa Group representatives, who persuaded him to come forward as a prosecution witness in an arbitration court in Zürich against Jeff Galmond.

“Knowing about my acquaintance with Jeff Galmond, an Alfa Group representative contacted me through businessman Oleg Burlakov (whom I'd once helped to sell his business to Telman Ismailov so that he does not lose it to Mayor Luzhkov's wife) and asked for my assistance in a legal action against Jeff. They had also requested mediation from Gleb Fetisov, who has now been charged with financial asset fraud by the Investigative Committee.

So Gleb asks me if there is some evidence to confirm malpractice on the part of Jeffrey Galmond. I say: ‘I'm on friendly terms with him. What makes you think I could be helpful?’ In the meantime, both Leonid Rozhetsky and Jeff Galmond himself openly admitted that the argument over the shares is a life-or-death matter.

The situation was so tense that bloodshed was a possibility; getting involved in this corporate argument was a huge risk. In 2008, when Rozhetsky disappeared, the Alfa Group insisted that I leave Denmark and spend half a year in Nice. So I did.

However, I made a call to my Copenhagen office and had them find that drawing of Jeff's. The Alfa Group demonstrated to me that Jeff Galmond had wronged me when acting as my legal representative. The story was as follows. My company, DB — Gas & Oil Ab, filed and won a lawsuit in Russia against Navoil, a subsidiary of Bashneft. The Russian court ruled in my favor and awarded $2.7 million in damages.

Getting on the wrong side of Galmond meant getting on the wrong side of Putin

Galmond undertook to oversee the enforcement for a $400,000 fee, and I was to receive $1 million to my account at Svyazbank. As soon as I signed my consent to a settlement agreement, Jeff went off the radar. As it turned out, Svyazbank belonged to Reyman. That was when I decided to testify against Jeff Galmond, but getting on the wrong side of Galmond meant getting on the wrong side of Putin. It was common knowledge that Putin's spouse Lyudmila worked at Telecominvest Moscow office.

Frankly, Jeff never tried to conceal his status as a straw man, a fictitious owner of this structure, while the de-facto owners were ‘St. Pete's telecom crowd’ headed by Reyman, a friend of Putin's. Reyman also bought a villa in Denmark. His villa was a place with a reputation. In all, it was clear as day that Putin in fact co-owned it, while his wife Lyudmila controlled the estate.

I'm no altruist, so I had no intention of helping Alfa earn money on my testimony. The Alfa Group paid almost $300 million for a blocking stake in Megafon, and Jeff <Galmond> sued them, trying to prove that these shares had not been eligible for sale. Their litigation had started back in 2003, and Alfa was losing. The court had no evidence of Galmond's underhand dealings with the Russians; by contrast, Alfa had earned a reputation of a company with mafia ties.

So I made a deal with Alfa: they would pay me $10,000 to cover my personal expenses and an additional $5000 for security, which was necessary because the witnesses were in apparent danger. Four years they were paying me and I was testifying in the Swiss court. The scheme drafted by Galmond was submitted for QDE, and his authorship was confirmed. For the first time, Alfa proved to the Swiss court that the entire telecommunications business owned by the IPOC Fund, an offshore firm registered in the Bermuda, had been built with Russian public funds, embezzled and laundered.

In 2006, the Swiss court admitted that Jeff Galmond did not co-own Megafon or other Russian telecom assets — with a total value of $13–14 billion. De facto, the assets belonged to witness number 7. I was witness number 15, and witness number 7 was Mr. Reyman."

In other words, Mikhail Yuman and the Alfa Group started off on a good note but their alliance did not last. Mikhail describes their conflict as follows:

"Alfa Group representatives needed information from Danish tax authorities on whether Galmond had declared his Russian telecom assets at home. However, the Danish tax agency does not issue information of such nature to foreign courts. Eventually, I put the Alfa Group through to an acquaintance of mine who used to work at a tax inspectorate and had access to such data. As far as I know, that man was good for his word and presented the required document for a bribe. Unfortunately, the Alfa Group had used my company to pay him, and they accused this acquaintance of failing to deliver what he had promised. Weighing the seriousness of accusations, I decided to go to the Danish police and to have them look for the money allegedly stolen by my acquaintance.

In 2008, the criminal case was transferred to the Danish tax agency, which has been investigating me ever since. As a result, I'm facing a 700,000 euros tax evasion claim.

Legally speaking, Alfa was to pay all the taxes from my remuneration, according to our service agreement. The Danes could not care less about the nature of the services rendered, but they said that Alfa was too far and I was right there, so the taxes were on me."

In brief, breaking it off with St. Petersburg «telecom crowd,» Mikhail Yuman did not get an in with the Alfa Group.

"We were working as a straw company for Timchenko"

Mikhail Yuman has also been involved in a scheme with another friend of Vladimir Putin's — Gennady Timchenko. Timchenko was using his offshore company, Gunvor, to export crude oil and petroleum products from Russia and became a near-monopolist in this area. To look less like a monopoly, he resorted to straw firms that acted as intermediaries. According to Mikhail Yuman, Gennady Timchenko received assistance from TNK-BP. The Alfa Group, which co-owned TNK-BP, suggested that Mikhail participates in this scheme: first, TNK-BP sells oil to Yuman's company; second, Yuman sells it to the British BP, and third, BP resells it to Gunvor. In confirmation, Mikhail has presented a contract between Danish company Vores Energy and a TNK-BP subsidiary, TNK-Trade, Ltd., for the purchase of mazut. The contract stipulated monthly shipments of 150,000 metric tons for eight months. However, Mikhail asserts that the mazut was never delivered.

"It was in 2007. I sat down with Alfa's top management, and we agreed that Alfa would finance my founding a company in Denmark with a charter capital of 888,000 krones (around $150,000 at the time). The company's objective was to participate in mazut supply tenders at TNK-BP. Hermann Han personally approved it. So we sign a contract for the supply of 1,200,000 tons of mazut from Novorossiysk to the Mediterranean to my company, Vores Energy. Motek Feldman, my manager, signs the contract with TNK-BP. They convince Feldman that we will buy it as a Danish company and then resell it to BP's London office. That is, the entire operation looks like a Danish company buying mazut from TNK-BP to sell it to a British company. In reality, the ultimate buyer was Gunvor. We were working as a straw company for Timchenko.

However, when we came to BP to finalize the deal, they said, 'Look, Mikhail, it says here you're buying with a discount of $3 per cubic meter, but we can only agree to buy with a $24 discount. That is, I had to procure $21 from my own pocket before reselling TNK-BP's product to BP. So I refused."

The Alfa Group's assistance to Gennady Timchenko is confirmed by one of the diplomatic cables uploaded by WikiLeaks:

From: Russia Moscow

To: Department of Commerce | National Security Council | Russia Moscow Political Collective | Secretary of State

Date: 2008 June 20, 15:34 (Friday)

GOR Intervention Needed

It was not until after Mikhail Yuman had broken in off with the Alfa Group that an attempt was made on his life on May 26, 2014. «I was on my deathbed, having spent four days in a coma. They took everything from my house, all my archives and documents. They ruined my life,» shares Mikhail without going into detail about possible motives or beneficiaries.

Mikhail Yuman has not received a single reply to his complains from Alfa Bank's supervisory board. The Insider had not been able to obtain comment from Jeffrey Galmond at the time of publication as he chose not to reply to our inquiries. Mr. Galmond presently resides in Switzerland and, having sold his assets to Alisher Usmanov in 2008, is not involved with the Russian business community. Neither is Mikhail Yuman.