Russian Elites

Changing Character of War Centre, Pembroke College, University of Oxford

20 April 2020

Covid-19 has triggered near textbook-like responses among rich Russians. Socialites have publicised their feuds over questions of ethics. (See Kseniya Sobchak who accused her fellow media celebrity Tina Kandelaki of profiteering through the sale of overpriced face masks.) Billionaires have showcased their latest pop-up campaigns: Roman Abramovich opened Chelsea’s Millennium Hotel to stranded and exhausted NHS staff. His fellow multi-billionaire Vladimir Potanin donated to NGOs that look after the poor during the coronavirus crisis, and billionaire Igor Rybakov is handing out medical masks to concerned Muscovites. On the flip side we see the superrich looking after their own: they buy up and hoard ventilators and set up makeshift clinics in their luxury homes, as The Moscow Times reported, at the expense of ventilator provision at public hospitals (Sauer 2020).

Double think

I am not suggesting in any way that Abramovich, Potanin, Sobchak, Kandelaki or Rybakov would deign to consider hoarding ventilators for their families or setting up makeshift clinics in their private residences. However, the socio-economic group they belong to has a certain reputation for having no qualms about jumping the queue. Among the 80 people I interviewed for my book Rich Russians (2018), there were numerous characters who exhibited two contradictory moral standards; one for public consumption and one for their own family.

Most of these billionaires and multi-millionaires came of age in the 1980s and 1990s, a time when the ability to rapidly change from one moral code to another could pay off handsomely. By then, automatically switching from one to the other and fusing together different, often opposing, values had become the norm and long ceased to cause moral dilemmas for the individual. Throughout the Soviet period, people had one face when they swore allegiance to the Communist Party line and a very different one in their homes when surrounded by their closest friends and family (see, for example, Yurchak 2006 and Ledeneva 2013).

These chameleonic skills are no less important today.1 A typical example of ambivalent reasoning among the rich is their attitude to Russia and their romanticised idea of themselves as well as their country’s superiority over the West. The myth is that Russian businessmen are more vibrant, energetic and open-minded than their Western counterparts. Many see Russia’s achievement in developing capitalism within just a couple of decades, when it took the West over two hundred years, as proof of Russia’s superiority. The telecommunications entrepreneur Yury Pripachkin, born in 1960, considers the youth of Russia’s entrepreneurs as one of its vital strengths. They are, on average, a generation younger than those in the West. In addition, they are self-made, more energetic and more hands-on. This group, he explained to me, is composed of ‘people who have done everything by themselves’ (Schimpfössl 2018: 161).

Despite such proclamations of faith in their country, they have consistently been syphoning their money into safe havens abroad rather than reinvest in Russia’s economy, which has been left underdeveloped and dependent on the extraction and exportation of natural resources. According to calculations by Thomas Piketty (2014), some 800 billion US dollars (more than half of Russians’ total wealth) is held offshore. Only in 2012, the Central Bank of Russia estimated illegal outflows for the year at 31 billion US dollars (Goodrich 2017).

Russia’s staggering economy has incited the Kremlin to take measures to ‘renationalise’ the business elite. A 2013 law forced government officials, their spouses and children under eighteen to divest themselves of foreign stocks and bank accounts. A law passed in 2015 obliges Russian citizens who want to keep their offshore assets to be out of the country for more than 185 days a year.

In response, many rich Russians rearranged their lives and assets and a good number of politicians abandoned their government positions rather than their houses in Europe, among them Roman Abramovich, who stepped down as the chairman of the legislature in Chukotka. Nevertheless, the 2015 Forbes Russia list included only seventeen individuals who were not residing in Russia. Especially in times of economic crisis, regular networking and interaction with the authorities and business partners in their home country is crucial to keeping everything afloat (Hartmann 2016). To settle outside Russia involves giving up any significant role in Russian business life. Emigration entails a personal sacrifice of home country ambitions, networks and culture that may be too heavy for many.

Continuously over the years, the largest amount of rich emigres and undeclared funds have arrived in London (Geever 2015).2 In contrast to New York, Britain’s capital is only a three-and-a-half-hour flight from Moscow, which allows rich breadwinners to leave their families safe and secure in London while they commute to Moscow on business. The United Kingdom has a large network of private schools to which money provides easy access. London is home to the most diverse providers of financial, legal and related services to store and protect wealth. The UK fiscal regime has some important elements of a tax haven in the sense that privacy is sacrosanct. The law enforcement agencies are much less tough than, for example, in the United States. British regulations are in some respects very unbureaucratic and its governance standards permissive (Shakson 2012; Hollingsworth and Lansley 2009). In contrast to France or Germany, it only takes about one day to set up a business in the United Kingdom.

There were two peaks in particular when Russians sought refuge in London for political reasons. First was the Yukos affair and the arrest of its owner, Mikhail Khodorkovsky, in 2003. A second wave followed the sacking of Moscow’s former long-term mayor Yury Luzhkov in 2010. The United Kingdom was particularly attractive because of its reluctance to extradite Russians.

The large majority of superrich emigres, however, have moved or set up second homes abroad for reasons unrelated to politics. A large number of them are close to the Kremlin. Putin’s long-term friend and hockey buddy Gennady Timchenko, for example, is a Finnish citizen and now lives in Switzerland (although he spends half of the year in Moscow). Most Russians with hundreds of millions of US dollars arranged for their homes in the West years ago, in the 1990s and early 2000s. They were followed in the mid-2010s by those with wealth amounting to tens of millions of dollars (Schimpfössl 2018: 155).

That Russia’s rule of law is not very reassuring was, until recently, not perceived as particularly unsettling. The absence of legal security in Russia was compensated by the easy access to Western (primarily UK) legal services. Business and ownership disputes could be relocated to UK courts, which Russians appreciate for their independence and lack of corruption. Such outsourcing of the rule of law became a key means of protecting elite interests and thus a major part of Russia’s political economy. It was widely sanctioned by the presidential administration and actively used by Putin cronies as well as his adversaries. As a result, Western jurisdictions contributed to stabilise and perpetuate state-elite relations within Russia (Gould-Davies 2018). Trust in London’s reliability as a litigation centre was, however, shattered after the Salisbury poisoning, when some UK politicians advocated the implementation of new sanctions against individuals with strong links to the Kremlin.

Elite continuity through elite ‘purges’

A more innocent example of double think is rich Russians’ attitude to education and schooling: Most of them see their fortunes as the product of their hard work, entrepreneurialism, willpower and innate superiority, stemming from their family roots in the Soviet (or even the pre-Revolutionary) intelligentsia. As part of this narrative they rank the education they received as an overarching factor in their individual success, and some feel indebted to the system. Boris Mints, born to a military engineer father and librarian mother, acknowledged his appreciation of his cultured upbringing and education by displaying art to the public. Ziyavudin Magomedov, the son of a brain surgeon and teacher of Russian literature and history, invested in Dagestan’s cultural and educational development. As a sign of gratitude to the mathematical school No 57 in Moscow, Vadim Moshkovich now runs a school for highly gifted students as well as financing local schools in the areas where his agricultural businesses are located. Many of my billionaire interviewees still laud the quality of today’s Russian school system as outstanding and one of the best in the world. Despite this praise for the excellence of domestic education, past and present, almost all of them send their children abroad for their schooling and university education.3

Two of the three billionaires mentioned here, Magomedov and Mints, have since fallen from grace. Magomedov was arrested in March 2018 and charged with setting up an organised crime group and embezzling state funds. In the very worst-case scenario, the Dagestan-born entrepreneur could be handed down a prison sentence of thirty years. In May 2018, Mints fled to London with his three sons to escape arrest, facing similar allegations of embezzlement to Magomedov.4

Neither Mints nor Magodmedov have done anything out of the norm with regard to how large-scale business-making and wealth accumulation work in Russia. True, Mints had retained undeclared and legally highly questionable links to his former bank Otkritie, which collapsed in 2016 and needed to be bailed out by the Russian state. Magomedov entered risky terrain when, all too openly and carelessly, he kept shifting his money offshore at a time when Russia encountered severe economic difficulties after December 2014. His arrest was meant to teach the rich a lesson: a lot of the wealth Magomedov had accumulated was down to the highly lucrative state contracts he had accrued over the previous years. The treasury’s increasingly constricted finances instigated the Kremlin to remind those who became rich on the back of the state, or with its support, that it would be expedient for them to re-invest some of their profit into the country’s economy, rather than selfishly parking it abroad (Romanova 2018).5

In recent years, Russia has seen a number of high-profile arrests over corruption and related crimes. Attacks on a small number of handpicked tycoons have been part of Putin’s reign right from the start. Once in power, Putin famously picked the most influential 1990s oligarchs (Boris Berezovsky and Vladimir Gusinsky), deprived them of their media holdings and, in the case of Mikhail Khodorkovsky, up to his arrest in 2003 the richest Russian, of their personal freedom. In the subsequent years, Putin consolidated his power by prioritising the so-called siloviki, personnel with a security or military background, into positions of power across all institutions, including the business world. Wealth in Russia has since been conditional on the approval of power.

As with most populists of our time, Putin’s tirades against the elites and the establishment go hand in hand with generously catering for the very same group. According to calculations by Credit Suisse (Stierli 2015: 28), a billionaire on Russian Forbes in 2005 was more likely to remain on the list into the 2010s than anywhere else across the G7 countries (96 percent and 76 percent respectively). Despite the sanctions imposed on Russia and some of its elites, no other richest of the rich in the world have done as well in recent years as Russia’s top-ten billionaires (Sazonov 2018).

The reason for that is relatively straightforward: Putin’s life relies on preserving his power. To this end, it is essential that he maintains the support of the country’s key business elites. He does so by playing them off against each other with the aim of keeping them in a state of rivalry so that they are too paralysed to plot against him. Spectacular arrests and court showdowns which expose elite corruption help restore order among the upper ranks. Putin might actually not need to go that far. Despite the high concentration of wealth in Russia, its business elites lack the culture and history to cooperate and concert their interests, which keeps them in check and prevents them from sticking their neck out.

The next generation

Putin does not need to worry about his standing among the youth. Predominantly raised in the West, many children of Russia’s first generation of wealth have embraced a cosmopolitan and liberal lifestyle that happily tolerates sexual diversity, rejects racism and welcomes gender equality. Russian politics and Putin’s regime might make them feel uneasy at times. Nonetheless, most of them see their future in Putin – in the sense that Putin is best positioned to secure the stability of their family’s fortunes. They are perfectly aware that, if they advocated a regime change, they would take a massive risk with regards to the assets they are meant to inherit.

The intergenerational pass-down of assets that is about to happen in the near future will probably be the largest wealth transfer the world has ever seen.6 There are other countries, most notably China, which will undergo a similar process; namely, a first-generation of wealth holders facing the challenge of how to bequeath their fortunes.7 In contrast to China, where the transformation towards market liberalisation developed gently from the late 1970s onwards, Russia’s capitalist reforms in the early 1990s came as a bombshell.8

Consequently, questions of bequest will hit Russia’s first generation of multi-millionaires and billionaires almost all at once. Most of them range in age from 50 to 70. Except for one (a 23-year-old heir whose father died in a plane crash), all the Russian Forbes-200 were born in the Soviet period. This was a time when privilege was dependent on status and occupation, but business and industry were owned by the state. Not a single one of them can fall back on entrepreneurial expertise of their parents, let alone their grandparents.9 This lack of family history is one reason that their children are not rushing to continue their fathers’ business activities. Another reason for economic elites to be reluctant to pass on their companies is their shady origin in the cut-throat 1990s.

Against this background, it is little wonder that more than half of Russia’s wealth possessors doubt that they will leave behind family dynasties (Skolkovo 2015). There is almost something pragmatic in a scenario of their children supporting Putin (taking their money and doing ‘a runner’).

***

The dynamics of the wealth transfer we are about to witness in Russia will be historically unprecedented and more intense than any ever to have occurred before. The enormity of this project is daunting even to the Russian rich themselves. The natural death of the first few of them has brought to the fore a heightened sense of mortality. Many crave a post-mortem legacy but are at a loss with how to go about it. The present Corvid-19 pandemic could potentially accelerate things. Rich Russians might be well aware that any efforts to hoard personal ventilators and secure medical teams may not suffice (Budyansky 2020). A Moscow-based cardiologist is quoted by The Moscow Times saying that, in the pending scenario, double think might hit home. The rich could be left out to hang and dry if the makeshift clinic in their luxury home is not up to scratch and their local hospital short of ventilators.

 

1 On an individual level, this becomes apparent in peoples’ ease at marrying contradictory morals. Artyom, a young oil and finance entrepreneur, admitted that he is telling lies all day long. He does so for the benefit of others, those who depend on him; he said business otherwise would be highly inefficient. ‘The more hostile your environment, the more you will lie’, he said (Schimpfö ssl 2018: 68). The very fact that Artyom lies is not particularly alarming; we probably all do so with more or less frequency and severity. Artyom is actually quite exceptional in the sense of that he is aware of his routine lying and has reflected upon it. Most others relate to their contradictory morals in a most cavalier manner and unabashedly flaunt their sense of entitlement.

2 Apart from the UK, popular destinations for Russian emigres include Israel, France, Spain, the US, and Switzerland.

3 At the time I conducted the interviews for my research, Moshkovich’s oldest son studied at Stanford (where he got by on less than US dollars a month as his father proudly declared), and his oldest daughter was at boarding school in England. Magomedov’s children went to Harrow and Ludgrove. His plan was to send them to study at a top institution on the US East Coast.

4 Nearly three years prior to that, when I met Mints in July 2015, there was little he said that would hint at such a course of events.‘If you do things right, you attract strong managers and you can spend your time on more beautiful things’, he explained to me. It seemed inappropriate to him that a corporate leader of his standing should continue managing the daily business. He chose to delegate operational matters to his sons, who he was sure – as it would turn out, mistakenly – had inherited his sense for everything entrepreneurial (Schimpfössl 2018: 2).

5 Nevertheless, Mints and Magomedov were unlucky enough to be singled out for retribution and be made an example of. Even their charity activities were very much in line with what the Kremlin approves of. Putin made it clear from early on in his presidency that he expected those who accrued a certain level of wealth to help fill the vacuum left by the withdrawal of the state. Magomedov’s commitment seemed to tick all the boxes; he focused on social and cultural developments in Dagestan, which was very much welcomed, if not prompted by the Kremlin, as it could help contain extreme Islamic sentiments in the region. Since 2001, Mints had collected artworks by Russian impressionists. He used to store these in a special vault hidden away from the public eye. However, he considered this to be wrong: ‘They should hang in the right place’, he said. His solution was to build a museum in the centre of Moscow – a patriotic gesture demonstrating his deep devotion to Russian culture.

6 Russia’s oligarchs control vast swaths of Russia’s $1.7 trillion economy. Globally, by 2030, $15 trillion of wealth will be passed on to the next generation. The majority of this transfer (amounting to $8.8 trillion) will be taking place in North America. In Europe, this will be $3.2 trillion, an amount largely down to the continent’s ageing population. Differences in age structure explain why Asia is envisaging a transfer of only $1.9 trillion by 2030 (Wealth-X 2019).

7 In fact, China will easily outdo Russia in terms of scale and numbers. What makes the Russian case special is, firstly, the small number of people involved and, secondly, the time frame within which this wealth transfer is likely to take place.

8 After the 1991 break-up of the Soviet Union, a ‘shock therapy’ was launched. The subsequent accumulation of private capital occurred within a comparatively short space of time; first during to the 1990s privatisations, then as a result of the 2000s oil boom.

9 Nowhere else in the world were market-economic logics eclipsed for as long as in the Soviet Union. Even the Chinese new wealthy can turn to succession traditions; at neighbouring Hong Kong and Taiwan as well as to large Chinese diaspora present in many countries of the South-East Asia.

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Elisabeth Schimpfössl

About Elisabeth Schimpfössl

My research focuses on elites, philanthropy and social inequality as well as questions around post-Socialist media and self-censorship. I did my PhD at the University of Manchester and taught at Liverpool University, Brunel and UCL before taking up my current post as Lecturer in Sociology and Policy at Aston University, Birmingham, UK. I live in London.