Operation Slippery: Russian aviation magnate diverts Australian Defence profits to tax havens

    by Michael West

 Australia’s Department of Defence is keeping silent. Yet it has serious questions to answer over its dealings with an elusive Russian aviation tycoon, an American mercenary outfit and a money trail which winds from Canberra to the Seychelles via Cyprus. Thanks to the #29Leaks data leak unveiled today in a global collaboration of investigative journalists by the Organised Crime and Corruption Reporting Project, Michael West Media and Crikey INQ raise serious questions about how the Government is spending our taxes. Kim Prince, Suzanne Smith and Michael West report. (2019)

 

In late 2010, a Department of Defence tender was issued for cargo helicopters to support Australia’s war effort in Afghanistan. At the time, Operation Slipper was in full swing, an operation notable for the first deaths of Australian soldiers in battle since the Vietnam War: 41 soldiers died and 261 were wounded fighting jihadist groups during the operation which began in October 2001 and ended in 2014. 

With very little disclosure, the contract was awarded to Vertical Australia, a company newly minted as the local agent for a Russian company, Air Company Vertical-T. The services would include the use of a Russian Mil Mi-26, the largest and most powerful helicopter ever produced.

The businessman behind Vertical Australia was a Russian aviation entrepreneur, Vladimir Skurikhin, who is connected to a slew of companies and partnerships around the world, from Cyprus to the Seychelles to the City of London. His deal with Australia’s Defence Department appears to involve leasing high-tech helicopters replete with pilots and crew.

On the face of it, the defence contract proceeded unremarkably; with the exception of a minor dispute that found its way to the NSW Supreme Court. The dispute was not between the Australian Defence Force (ADF) and its supplier Vertical Australia, but within the supplier’s own payment chain, which included a mysterious entity in Cyprus, a banking haven for Russian oligarchs. 

 

Vladimir Skurikhin, the General Director of Vertical-T, would later attest that the complex chain was in place due to a mistaken belief that Australian companies were forbidden from making payments directly to Russia.

The upshot of the dispute was twofold. Firstly, Vertical Australia paid more than $2.3 million into the Supreme Court of NSW, leaving the court to decide to whom it should be remitted. Should it be paid directly to the Russian supplier Vertical-T, or to its erstwhile intermediary, Wellman Limited of Cyprus? On this score, the court would ultimately rule in favour of Vladimir Skurikhin’s military contracting company Vertical-T.

The second effect was that DynCorp Australia was appointed as Vertical-T’s new agent, and Vertical Australia folded. DynCorp, part of the controversial US defence contractor DynCorp International, had been trying to get a foothold in Australia for eight years. Its parent, DynCorp International, which is owned by a New York private equity firm Cerberus Capital, has been embroiled in a suite of scandals including corruption allegations over US military contracts in Iraq and sex-trafficking in Bosnia. It has been labelled a “mini-Blackwater”, a reference to its history of providing mercenary services.

All of this was water under the bridge until October this year, when Michael West Media and Crikey INQ were invited to participate in a cross-border investigation. The Sarajevo-based Organised Crime and Corruption Reporting Project (OCCRP) had received a massive leak of data from UK-based Formations House. It would require an international team of investigative journalists to extract maximum advantage from it.

Formations House

Formations House is a company formation agent, sometimes referred to as a shell company factory. They offer a range of services for creating and operating corporate entities in a number of countries including offshore secrecy jurisdictions, aka tax havens, such as the British Virgin Isles and the Seychelles. 

Although legitimate companies use the services of Formations House too, many others enlist  it to hide their murky deals, to avoid tax and inspection from financial regulators. Part of the lure for business people keen to hide things is the prestigious address, — number 29 Harley Street in London. Besides the offer of an upmarket address, Formations House provides a local phone number, a bank account, and preparation of annual accounts and company filings. For those seeking a business façade and a degree of anonymity, this is a one-stop-shop.

The hundreds and thousands of documents leaked from Formations House, 15 years of data, are now in the hands of a worldwide media collaboration dubbed #29Leaks. Teams of journalists, including the authors of this story, have spent months combing through the data using the very latest in leak-exploitation technology.

The manager of Formations House, Charlotte Pawar, claims that the leaked data has been the subject of extortion attempts since March, however we have not found evidence of this.  She has even suggested that some journalists and media outlets are in some way linked to the alleged extortion attempts.

The stories that have been uncovered from the leaked emails, phone calls and file notes include expose’s of African dictators, fake Gambian banks, Hell’s Angels corporate structures, and all manner of secretive international corporate transactions.

And now the Australian partners, Michael West Media and CrikeyINQ have found a disturbing story about the Australian Defence Force and a web of intrigue involving contracts that include Russian contractors and what appears to be money laundering using Australian taxpayers money.

STS Corporation and the MH17 disaster

Deep in the Formations House leak is a UK-based company, STS Corporation. Its bank statements show tranches of cash arriving from various countries including Afghanistan, Russia and Australia.  There are also frequent outbound transfers from STS to entities in tax havens where, in many cases, the real beneficiaries of the money are simply unknowable.

There are payments to Progate Solutions LP, a Scottish limited partnership which was part of a scheme which laundered at least $US20.8 billion out of Russia between 2010 and 2014. According to Transparency International, law enforcement agencies believe the figure could be as high as $US80 billion. Progate alone was reported to have moved $US194 million in 16 months over 2013 and 2014. It has also seen large flows of cash from interests associated with Vladimir Skurikhin.

One series of payments which deserves particular scrutiny relates to a Vladimir Starkov. In 2015, the year after Russian separatists shot down MH17 in Eastern Ukraine, killing 298 people – including 27 Australians and one New Zealander –  a Russian Major, Vladimir Starkov, was caught fighting against Ukrainian separatists in the same region of Ukraine. He was convicted of terrorism offences and sentenced to 14 years jail. Later, he would be transferred back to Russia in a prisoner swap deal, after being pardoned by Ukrainian President Petro Poroshenko.

In 2013, the year prior to the downing of MH17, the STS bank statements show semi-regular payments to a Vladimir Starkov. The amounts start in May. They vary in value but are generally increasing until November when they abruptly stop. They are not enormous sums, more in keeping with the income of a well paid Russian military operative than, say, a politician or significant customer receiving a kick back.

At this point, we do not know whether the Starkov on Skurikhin’s payroll is one-and-the- same as the Starkov pardoned by Poroshenko. We have put questions to Vladimir Skurikhin but without success. There are, undoubtedly, a number of Vladimir Starkovs in the world, any of which may have been paid by Skurikhin.

Defence Department refuses to respond

Questions were put to the Department of Defence about its knowledge of the beneficiaries of the Vertical Australia contract payments and the money trail through tax havens. No answer has been forthcoming, including answers to questions about money-laundering and the flow of Australian taxpayer dollars to Russian interests in tax havens. 

Given the money being spent is taxpayer money, and as Australians can reasonably expect transparency around how the government is spending their money, it would be good for Defence to rule out Major Vladimir Starkov as being the man paid by Skurikhin — rule out that their taxes are being deployed lining the pockets of rogue Russian military officers.

At the time of the MH17 tragedy, then Prime Minister Tony Abbott was demanding answers of Russia: “Australians were murdered. They were murdered by Russian-backed rebels using Russian-supplied equipment,” said Abbott, pledging to expose the culprits and bring them to justice.

Contacted for this story, Centre Alliance senator Rex Patrick said the intrigue surrounding the Skurikhin transactions reflected the urgent need for greater transparency in Defence and in the way the Federal Government went about its procurement.

“If ever there was a story that illustrated the need for greater transparency in Government procurement, this is it,” said Patrick today. “Government needs to have a much greater understanding of exactly who they are dealing with and where taxpayers money ends up”.

“I will be making further inquiries in the Parliament in relation to this procurement. Part of the solution to this is my ‘Tax Transparency in Procurement and Grants” bill which requires companies to disclose their structure, particularly in respect of related entities domiciled in tax havens, as they tender for work.”

The Seychelles Connection

STS Corporation LLP is owned by two companies. These companies are based in the Seychelles, so little is known about them. Thanks to the UK’s register of beneficial ownership however, (a register of beneficial interests – that is, a register of actual owners – is noticeably absent from the Australian reporting system) we know that STS is ultimately controlled by Vladimir Skurikhin, the man who was also the main beneficiary of the Vertical Australia contracts.

It appears that STS was created around the time of the Australian court case between Vertical Australia and Vertical-T to replace the apparently fraying payment chain which had given rise to the court action. A noticeable feature of the Russian aviation tycoon’s layered money trail, with its upmarket Harley Street address, is that money can be redirected, and in many cases, not ever reach Russia.

In addition to the bank statements, the leaks include emails, attachments and contracts. In one tetchy email from a representative of a KBL Group LLP, another Formations House company which we suspect is linked to Skurikhin, the writer advises that the “Client does not approved [sic] the statements. The result was a large tax to pay — nearly 10,000 pounds”.

It goes on to ask Formations House to add some costs, “for example, legal consulting services or something else”. They indicate they are satisfied with a tax bill of no more than 3,000 pounds.

The rise of DynCorp 

On the Australian front, the Formations House leak includes an agreement, signed by a former director of DynCorp Australia, in which STS is to act as agent for DynCorp Australia, representing the company in business dealings in Europe and the Middle East. 

On its website, DynCorp says it “…sustains and improves the ADF’s operational capabilities through logistic support, facilities maintenance, and project management services”. So what products or services would this defence contractor, who is presumably entirely dependent on the public purse, have to export via its agent? We attempted to contact the Dyncorp director, and later put this question to an associate, but at the time of publication there had been no response. 

One intriguing aspect of DynCorp’s engagement with STS comes directly from bank statements found within the leak, and it raises questions about the broader context in which the transactions took place. That context includes the issuance of the Request for Tender by the ADF, the initial fulfilment by Vertical Australia, continued fulfilment by DynCorp Australia, the court case, the payment for the services, and beyond.

These questions into so-called rotary wing services – helicopters in layman’s language – are compounded by the fact that, at the exact time the contracts were rolling out, there was a parliamentary inquiry into irregularities relating to the tender process for so-called fixed-wing services in Afghanistan.

Probity risks in Australia’s military procurement

The inquiry found that – due to both past experiences and current circumstances – there were “significant probity risks, particularly in respect of conflicts of interest, breaches of confidentiality” and that contracts in the Middle East Area of Operations (MEAO) had a notorious history of controversy.

“Defence was notably inattentive when it came to identifying and managing probity risks, especially conflicts of interests. Thus a cloud of uncertainty lingers over the integrity of this tender.” 

Due to the reluctance of the Defence Department to comment on the transactions, we have limited information about the contracts, where the money went, or how it was spent but the payments by DynCorp raise two specific concerns. Firstly, their description does not seem to reflect their true purpose, a known red flag for money laundering. Secondly, two of the “mis-labelled” transactions are immediately followed by large transfers from STS to a highly suspicious and ultimately anonymous beneficiary.

Mis-labelled Transactions

Between October 2012 and February 2013, more than $US1.1 million was transferred from DynCorp to STS. The transaction descriptions that appear in the STS accounts claim that they are refunds for overpaid legal fees. From the timing and the size of the payments, it appears that these transactions are almost certainly part of the funds which the NSW Supreme Court ordered should be remitted to Vertical-T. 

In her orders on the case, Chief Judge Julie Ward specified that the $2.3 million should be paid to the new agent DynCorp, who would, in turn, pass the funds to Vertical-T.

Yet it appears that the funds were in no way related to legal fees. They were, in fact, for services provided by Vertical-T, services which were invoiced in September and October 2011, and would presumably be taxable in Russia. 

Spectre of money-laundering through Australian courts

So, what are two companies controlled by a Russian tycoon doing soaking up the resources of Australia’s court system in a dispute and why would the payments be described as refunds on legal fees?

Around the time in question, sham litigation had become a popular tool for money launderers. In one scenario, an overseas litigant prepays their legal fees. Shortly after, there is a surprise turnaround, the litigant advises that the case has been settled and requests the return of the fees. 

In another scenario, companies engage in a sham dispute over, for example, a fictitious loan. This leads to money being paid in to court, and later paid out with an authentic court order attached. In either scenario the money is now “clean”. Progate Solutions, who at one point received payments from STS, was known to use this technique and Vladimir Skurikhin had made transactions with Progate in the past.

So was the dispute which ended in the NSW Supreme Court genuine? It is not possible to say with certainty, but there are some important facts to consider.

The dispute arose when Vertical-T advised its agent, Vertical Australia, that it should no longer transmit the funds via its intermediary in Cyprus, Wellman Limited, but rather should transmit them directly to Vertical-T instead. Wellman objected to this course of action, insisting that Vertical Australia was contractually obliged to send the funds to it.

Faced with competing demands, and apparently keen to avoid being sued, Vertical Australia paid the funds into the court. In the court action, Vertical Australia’s sole director and shareholder, Yuri Tchernobryvko, said he was aware that Vladimir Skurikhin was a shareholder in Wellman. Vertical-T denied, however, that Wellman was associated with it. It said that it did not control Wellman, and that Wellman “was an entity established by Ms Baraney”.

We were unable to contact Yuri Tchernobryvko for a response for this story. He may have been a Bondi taxi driver. No impropriety is alleged on his part.

The Cyprus Connection

Documents from the companies registry in Cyprus show that a Liudmila Baraney and Vladimir Skurikhin established Wellman as equal partners in 2005. Shareholders and directors have come and gone, but Baraney and Skurikhin remain. At the current time, Baraney and Skurikhin are the only two directors and each owns half the company. If there was indeed a genuine falling out between Vertical-T and Wellman, it was obviously not lasting.

In relation to the next intermediary in the payment chain, the company that would receive payments from Wellman and transmit them to Vertical-T in Russia, Chief Judge Ward noted that there was a “deafening silence”. Our investigation shows that this now defunct UK company, KBL Group Limited, was another Formations House company. It was controlled by companies in the Seychelles, and those companies appear to have other close connections to Vertical-T’s Vladimir Skurikhin.

For clarity, the facts of this case do not call into question the actions of Vertical Australia. There is nothing to suggest that this company may have been in any way involved in wrongdoing.

Unknown Beneficiaries

The two suspicious payments outbound from the STS account occurred on the same days as two of the large, mis-labelled incoming transactions. They were reportedly sent to a Layne Desing LLP, and totalled US$730,000. We were unable to find a Layne Desing LLP in our research, but we did find a Layne Design LLP.

Layne Design LLP was a UK entity. It was incorporated on 20 June 2012, the exact same day the NSW Supreme Court was hearing the case that would ultimately direct disputed funds to Vertical-T. Layne Design is owned by companies in the Marshall Islands, another secrecy jurisdiction. Between them, the Marshall Island companies control hundreds of corporate entities — a hallmark of wide-scale money laundering. At least one of Layne Design’s sibling companies has been accused of money laundering, in a case that involved a Ukrainian High Court Judge.

Layne Design LLP appears to have been a single-use company. Following its incorporation, it lodged not a single return or document with the UK companies register, Companies House. After 18 months, the apparently abandoned company was struck off. In all likelihood, the only real order of business for Layne Design’s nominee directors would have been to open a bank account, and sign a power of attorney giving the true company owners control of that account.

Questions in the Margins

The Formations House leak throws a bright light on a complex business deal, but it is a narrow light and questions loom in the shadows, starting with the timing of the tender issued by the ADF.

The relevant tender (as far as we can establish) is dated 25 October 2010, however court documents show that the agency agreement between Vertical-T and Vertical Australia was first documented more than one month earlier — 10 September 2010. In other circumstances, such uncanny timing may not be noteworthy, but in this case the tender process was running in parallel to a parliamentary inquiry into fixed-wing services in Afghanistan. 

Irregularities in the tender process were central to the inquiry, including questions about probity and conflicts of interest.

Following the tender, Vertical Australia was awarded the contract and should have made its first appearance in Commonwealth contract data in February or March 2011. But a search of the publicly available data shows no trace of any contract awarded to Vertical Australia, and the Government’s AusTender website operator was unable to locate contract information for the relevant Request for Tender. Was this simply a matter of shoddy business processes or data handling capabilities? Or was the information not subject to disclosure laws?

If the data is not subject to disclosure laws, why is it so? Why is the public able to see who is awarded the contracts for say, security staff in Afghanistan, but not cargo helicopters?

Taking its cut – the Dubai Connection

Then there is the question of PME International, a company which is, indeed, difficult to pin down. Court documents suggest that in the days of Vertical Australia, PME was taking a cut of around 20 per cent from the ADF payments, and in some circles, the provider of Australia’s heavy-lift rotary wing services was described as “PME International Vertical-T”. 

But who is PME International, and what is their role? In this murky transaction, stemming from a particularly sensitive time in Australia’s history, do Australians have a right to know?

As best we can make out, PME International is a Dubai-based business with an eclectic set of interests including aviation services, general trading, advertising, art and design, and healthy salt products. There are suggestions that PME is also in the business of leasing, but its website shows no sign of it. More importantly, there is no way to identify the legal entity from the website. A search of the site opencorporates.com shows a number of possible matches, but which is it?

It would seem reasonable that when the ADF places its trust in a supplier – any supplier – we should expect the supplier to model at least the essential values of that important government institution. However, as the DynCorp episode shows, that is simply not the case.

When DynCorp Australia inherited the Vertical-T contract, Skurikhin’s team must have asked DynCorp to remit funds to STS Corporation, and not directly to Vertical-T. We can only guess at the justification provided, but by this time, it is on the court record that Skurikhin knows there is no prohibition on an Australian company paying a Russian company directly.

If DynCorp had conducted even the most cursory check, they would have discovered that STS Corporation had been established only seven months earlier and, therefore, had a limited track record. Further due diligence would show that it was owned by two companies that are domiciled in the Seychelles. The director at the time, Evaline Sophie Joubert, holds similar roles in numerous companies, so is almost certainly a proxy.

Further, given that the underlying contract was with a Russian company, and the agreement with DynCorp Australia had only come about when the previous payment arrangements collapsed, it seems implausible that alarm bells were not ringing at DynCorp. But not only did DynCorp go ahead, it appears that they added to the murkiness by describing $US1.1 million of funds as something which they were not.

There are a lot of small truths here we may never know — the details of the rotary wing contracts, the real reason behind the short life of Vertical Australia, the role of PME, whether the court case was genuine, why the transactions were labelled incorrectly, and whether Vertical-T was the only beneficiary of the contracts or whether other parties were involved.

There does appear to be one clear winner though, and that is DynCorp. DynCorp Australia was established in 2004 and, if the public contract data is a fair representation of their history, they languished for almost ten years. An internal dispute in the payment chain of a Russian aviation tycoon was a turning point in their history, and since 2014 they have won at least $380 million of Australian government contracts. And yes, much of the profit appears to be taken offshore.

 

https://michaelwest.com.au/operation-slippery-russian-aviation-magnate-diverts-australian-defence-profits-to-tax-havens/

 

 

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Rex appeal? It can only travel so far 

Jeremy Burfoot

The ailing airline must become a public company. Not doing so and selling its assets will lead to even bigger monopolies.

It is said you can make a small fortune in the airline industry by starting with a large fortune. Just ask one of the world’s greatest investors, Warren Buffett, who once quipped, ‘‘If a capitalist had been present at Kitty Hawk ... he should have shot Orville Wright.’’

He’s right. Airlines don’t make good investing sense. They are capital-intensive and subject to the vagaries of geopolitics, the oil price, economic contractions and ego-driven competition. But for some reason, rich people with lazy money can’t resist the industry, and CEOs suck in this money, spin the BS, and pay themselves a huge salary until reality sets in and the music stops. A lot of innocent, hard-working people always suffer a crash landing in the process.

There is some history of this in the Australian aviation market. In the 1990s, Compass Airlines battled the ‘‘Two Airlines Policy’’ and the incumbents, Ansett and the government-owned Australian Airlines, made it impossible to compete, aided and abetted by the government of the time.

Jetstar was successful because it was owned by Qantas, which – after snapping up Australian Airlines – effectively had a monopoly. Jetstar only served to strengthen this monopoly. This is still the case today. The Australian aviation market is not a duopoly. Qantas merely allows Virgin a certain percentage of the market to keep the regulators happy.

Bonza was never going to work, but they did their best until the music stopped. It was a shambles. Ego is a dangerous thing. Which brings me to Rex, largely successful as a regional carrier for many years until arrogance and hubris raised its head again. Its big mistake was taking on the main trunk routes between Melbourne, Sydney and Brisbane. They should have stuck to their knitting.

Surely it was obvious to Rex that the required landing slots weren’t available and that the ‘‘bull’’ was already there. If an ant looks at a bull in a paddock and says out loud, ‘‘I’d like a piece of that action,’’ the bull will just chuckle and think, ‘‘bring it on, buddy’’.

A monopoly airline with bigger pockets has the advantage of economies of scale. It’s easy enough to crush a smaller competitor just by being legally competitive, and as we have seen in recent times, Qantas doesn’t even seem to care whether what it does is legal or not. What chance did Rex have? Zero. But why couldn’t its management see that?

So what’s to be done? In a country like Australia, aviation is an essential service and should be regulated as such. But relying on government regulation would be silly given our country’s history on the subject. The Qantas Chairmans Lounge has few other logical reasons to exist other than to influence the right people. The recent Qatar Airways fiasco shows the government’s ability to make decisions that favour Qantas’ business, with the government deciding not to grant Qatar extra slots to protect Qantas.

Nevertheless, the same government needs to rescue Rex and make it a public company. Not doing this and selling the remnants will mean even bigger monopolies. Any public investment in Rex needs conditions that protect the airline from the idiots who would seek to profit and make poor egodriven decisions.

Of course, the $150 million invested by PAG Asia Capital to allow Rex’s foray into main trunk route flying will no doubt be very high on the creditors list, so sorting out the mess won’t be simple or cheap.

Taxpayers need to be compensated for their investments in essential services. The $2.7 billion paid to Qantas during COVID-19 with no equity in return was a travesty. They should have given up equity or paid it back. Indirectly, some of it even ended up paying for renovations of Alan Joyce’s penthouse in The Rocks. That is unacceptable.

In an ideal aviation world, the playing field needs to be as level as a runway. Slots should be shared and anticompetitive behaviour must be outlawed. Two-dollar airfares are predatory and ultimately don’t benefit the public. Selling airfares for less than cost should be illegal. It wouldn’t be hard to work out the numbers on this and police it.

And for anybody who still thinks an investment in airlines is a good idea, take a look at the long-term Qantas share price. In 2008, it was $6. Since then, it has been down near $1 and is currently back at around $6. Given that dividends have been as scarce as hens’ teeth and inflation over that time has wiped out more than 40 per cent of a dollar, the return over those 16 years for putting your hard-earned capital at risk is a loss of at least 33 per cent.

Given that the economy is likely to become a basket case sometime soon, I wouldn’t recommend standing under the QAN share price right now without a hardhat.

Jeremy Burfoot is a retired Qantas A380 captain and the author of The Secret Life of Flying.

 

SMH 01 AUGUST 2024

 

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Aviation, sport, social media. How the Russian oligarch riches find a way around the world.

   

by Matt Prescott

 

The companies and individuals linked to the owners of now-defunct Bonza Airlines are part of a complex global web used to whitewash billions of dollars. Matt Prescott with the investigation.

Bonza Aviation is in administration after its owner 777 Partners, a Miami-based private equity company that owns a curious mix of airlines and leasing companies, as well as stakes in several football clubs in Europe, South America and Australia.

MWM understands that 777 Partners’ inability to continue supporting Bonza’s floundering cash flow was partly due to a failed bid for English Premier League (EPL) team Everton FC.

The failed bid for Everton FC means it’s still owned by British-Iranian businessman Farhad Moshiri (no relation to the recently deceased Iranian artist with the same name). Moshiri was previously the chairman of USM Holdings, a Russian company with significant interests in the metals and mining, telecoms, technology, and internet sectors.

Alisher Usmanov

USM Holdings is 49% owned by an Uzbek-Russian billionaire, Alisher Usmanov, who is reportedly one of the 100 wealthiest people in the world due to his publishing house Kommersant, mobile phone carrier (Megafon), tech company (Digital Sky Technologies (DST), later renamed Mail.ru Group, and metal interests (Udokan; copper).

(Kommersant was formerly owned by Russian oligarch Boris Berezovsky. Originally close to Vladimir Putin, they fell out, and Berezovsky lost most of his assets, was exiled to London, and was found dead in his home in 2013 “with a ligature around his neck.”)

On 28 February 2022, the European Union (EU) blacklisted Usmanov in response to Russia’s invasion of Ukraine. Resulting in an EU-wide travel ban for him and the freezing of all his assets. On 3 March 2022, the United States imposed similar sanctions on him, with exemptions being given to some of his businesses, which authorities worried might otherwise disrupt the global economy and supply chain.

The Official Journal of the European Union described Usmanov as a “pro-Kremlin oligarch with particularly close ties to Russian President Vladimir Putin [who is] one of Vladimir Putin’s favourite oligarchs.” Usmanov lodged an appeal in the European Court of Justice (ECJ) attempting to lift the sanctions, but the appeal was dismissed on 7 February 2024.

In 1992, Usmanov married Uzbek-born Russian rhythmic gymnastics coach Irina Alexandrovna Viner, head of the Russian national gymnastics team and President of the Russian Rhythmic Gymnastics Federation. Viner is considered to be close to Vladimir Putin, having introduced him to former rhythmic gymnast Alina Kabaeva, who is reportedly Putin’s long-time romantic partner. On 4 May 2022, Usmanov filed for divorce from Viner.

Usamov’s holding of 49% of Russia’s second-largest mobile telephone operator, MegaFon, gives him significant influence in Putin’s Russia.

Mail.Ru Group (now VKontakte)

In 2007, VKontakte – a social media company – or VK as it is commonly known, was founded by Pavel Durov (20% shareholder) and a trio of Russian-Israeli investors, Yitzchak Mirilashvili (60%), Mikhael Mirilashvili (father of Yitzchak, 10%) and Lev Leviev (10%).26 VK is the Russian equivalent of Facebook.

Later the same year, Digital Sky Technologies (DST), an investment company run by Yuri Milner (a co-founder of the Breakthrough Prizes in the US with Facebook’s / Meta’s Mark Zuckerberg), acquired 24.99% of VK shares from the initial shareholders for $US16.3m. In 2010, ahead of the Initial Public Offering (IPO), the international and Russian assets of DST were separated, and the international assets became part of the DST Global fund, while the Russian assets were merged into the Mail.ru Group. By mid-2011, Mail.ru had acquired a 39.99% stake in VK, with aspirations of acquiring 100%.

In March 2012, Durov heard about negotiations involving Yitzchak Mirilashvili and Lev Leviev selling their shares in VK to Mail.ru Group’s main investor, Alisher Usmanov. At this point, Durov deleted webpages referring to the initial investors in VK and shortly afterwards postponed its IPO.

At the end of May 2012, Milner and Usmanov’s Mail.ru yielded control of VK by offering Durov the voting rights to their shares. Combined with Durov’s 12% personal stake, this gave Durov 52% of the voting rights.

Subsequently, in April 2013, the Mirilashvilis sold their 40% stake in VK to United Capital Partners (UCP), and Lev Leviev simultaneously sold his 8% to UCP, giving UCP 48% ownership of VK.

Pavel Durov then sold his 12% personal stake in VK in January 2014 to Ivan Tavrin, the CEO of Megafon, a company owned by Alisher Usmanov (see above).

The end result of these complex financial dealings was that Usmanov and his allies now controlled 52% of the company. The CEO of Megafon then sold his 12% personal stake to Mail.ru, enabling Mail.ru to take operational control of VK.

April Fools Day

On April Fool’s Day, 1 April 2014, Durov submitted his resignation from the board of VK. Later, claiming this was an April Fool’s joke, he was dismissed as CEO on 21 April, claiming that VK had been taken over by Vladimir Putin’s political faction. He then fled the country and focused his efforts on the encrypted messaging service Telegram.

Additionally, it is worth mentioning that before all of the above shuffling of VK shares and voting rights, Usmanov became associated with Yuri Milner in 2008 and soon became a shareholder of DST and VK (Mail.ru Group).

Usmanov had 25.3% of the shares in VK but 60.6% of voting rights until he sold a $US530m stake in 2013, reducing his shares and voting rights to 17.9% and 58.1%, respectively. The plot thickened when, in 2013, Usmanov acquired Pavel Durov’s shares in VK.ru, to help Durov retain control of the Telegram app when UCP claimed that Telegram belonged to VK.

On September 16, 2014, the Mail.ru group bought the remaining 48% of VK from the UCP for $US1.5B, thus becoming the sole proprietor of the social network.

In December 2021, Usmanov’s USM Holding shares were sold to the Russian insurance company Sogaz and combined with a stake held by Russian state-owned Gazprombank to give a controlling interest in the company.26 Usmanov said that VK involvement has largely determined the development of USM.5

We don’t know everything that went on during the complex takeover of VK, but it is worth noting that during this period, Alisher Usmanov was involved in the takeover of VK with Kremlin loyalists via both Megafon and Mail.ru.

VKontakte has since been accused of becoming a tool for repressing opposition activists.

Social media investments

Alisher Usmanov’s importance in the world of social media, Silicon Valley, and the Big Tech industry does not end there.

In 2009, Mark Zuckerberg, the founder and CEO of Facebook / Meta, turned to Russian investors at a meeting brokered by Goldman Sachs. Usmanov invested in Facebook in 2009 via Mail.ru, investing $US200m for a 1.96% stake, valuing Facebook at $US10B. One of Mark Zuckerberg’s conditions was that Usmanov give Zuckerberg his voting rights on these shares.

By the time of Facebook’s IPO, in 2012, Usmanov’s stake in Facebook was worth at least $US1.4B, a three-year return of 600%.

Digital Sky Technology (DST), which Usmanov was involved with via Yuri Milner, made an $US800m investment in Twitter in 2011.

Through Yuri Milner’s Mail.Ru Group, formerly Digital Sky Technology (DST), Usmanov also made sizeable investments in Groupon, Zynga, Airbnb, ZocDoc, Alibaba and 360buy.5,31

Usmanov also invested $US100m in Apple in 2013 before selling an unknown number of his shares in early 2014. His investment in China’s Alibaba marketplace was thought to have gone up in value by 500% by late 2014.

In September 2018, a $US2B joint venture was reportedly agreed between Mail.ru and Alibaba Group Holding Ltd, which would merge the online marketplaces of Mail.ru and Alibaba in the Russian market. This deal was backed by the Kremlin via the Russian Direct Investment Fund (RDIF), Russia’s sovereign wealth fund.

Arsenal Football Club

Between 2007 and 2018, Alisher Usmanov was a major shareholder of the English football team Arsenal, having acquired a 14.58% stake. Usmanov and his business partner Farhad Moshiri (remember him?) bought their £75m stake from the club’s former vice-chairman David Dein. Dein was later appointed head of their investment vehicle, Red and White Holdings, which became the largest shareholder in the club outside of members of the board of directors.

Red and White Holdings increased its shareholding to 23% in September 2007. This made Red and White Holdings the second-largest shareholder in the club behind a non-executive director at Arsenal, Danny Fiszman. In February 2008, this stake was increased to over 24%, just short of Fiszman’s 24.11%, and to 25% a year later.

At this stage, Red and White Holdings confirmed that it was the club’s largest shareholder, with the company saying it “has the necessary funding to increase its stake further (but) it has no current intention to make a full takeover bid for Arsenal for six months.” This was significant because once a stake reached 30%, an investor such as Red and White Holdings would have to launch a formal takeover.

As a result of Usmanov’s interest in Arsenal, a “lock-down” agreement was initiated by the Arsenal board, with the chairman, Peter Hill-Wood, announcing directors at the club could only sell their stakes to “permitted persons” prior to April 2009, and should give other board members the “first option” to buy shares until October 2012. Arsenal’s managing director, Keith Edelman, said that “The lockdown … makes us bullet-proof” (from a hostile takeover).

In April 2011, American billionaire businessman Stan Kroenke (husband of Ann Walton, a Walmart heiress), who was already a significant Arsenal shareholder, increased his stake in Arsenal to just over 62% after buying out the stakes owned by Danny Fiszman and Lady Bracewell-Smith. whose family had held Arsenal shares for several generations. This made Kroenke the majority shareholder. As a result of Kroenke’s crossing the 30% stake threshold, he was now obliged to offer to buy out the remainder of Arsenal shares. Usmanov refused to sell to Kroenke and instead held on to his stake.

Usmanov increased his Arsenal shares beyond 29% in June 2011. He then purchased shares held by the Scottish football club Rangers in February 2012. As of October 2013, he owned over 30% of the club. In August 2018, Usmanov sold his shares to Kroenke for £550m.

Everton FC

Returning to the Everton part of the narrative, in January 2017, Usamanov’s USM Holding signed a five-year deal with Everton FC for more than £15m for the naming rights of Everton’s training ground, Finch Farm.

Usmanov’s accountant and partner in USM Holdings is Farhad Moshiri, the current majority shareholder of Everton FC and former co-owner of Usmanov’s Arsenal shares via Red and White Holdings. Moshiri owns 94% of the club.

In 2019, Megafon, the Russian mobile phone company 49% owned by, became the sleeve sponsor for the men’s training wear of Everton FC and its official matchday presenting partner. They then expanded their commercial agreement with Everton in 2020 to become the main sponsor of the women’s team. Usmanov continued to provide funding for the club despite the fact that he was barred from entering the UK in 2021.

Everton suspended its sponsorship ties with USM and MegaFon in March 2022 following the Russian invasion of Ukraine.

Money laundering risk

So why does any of this matter to anyone in Australia?

The wealth generated by Russia’s immense fossil fuel exports acts as a gigantic slush fund, which then gets diversified and laundered around the world. Anyone who comes into contact, directly or indirectly, with this Russian wealth and the influence it buys is vulnerable to being sucked into a dark and dangerous world of murky deals.

Russian wealth and influence may corrupt popular culture via sport, betting, or politics, shift energy, industrial, climate, tax, and competition policies in other fossil fuel-producing countries, and even influence transport options and economic development in countries like Australia, operating independently, outside the protection of large trade blocs.

We are not suggesting that 777 Partners or Bonza Airlines have been involved in anything illegal, but we question the wisdom of Australian aviation flying so close to Vladimir Putin and his oligarchs.

Aviation and sport are significant drivers of economic development and opportunities and should be viewed as strategic industries. They deserve far more national investment and regulation, as well as insulation from malign interests seeking to shift Western popular culture and politics.

 

 

 

* Spot the oligarch: Top row, from left to right: Fahrad Moshiri, Alisher Usmanov, Pavel Durov and Yuri Milner. Bottom row, from left to right: Boris Berezovsky, Vladimir Putin, Mark Zuckerberg and Stan Kroenke.

 

GUSNOTE: THERE ARE NO PROOFS THAT VLADIMIR PUTIN IS AN OLIGARCH... 

 

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