When Roman Abramovich announced last week that he is to purchase the British soccer club Chelsea for $233 million, he sent shock waves through the British soccer community. Everybody wanted more information about the oligarch, who is the second richest man in Russia, with a fortune amounting to $5.7 billion.
Roman Abramovich made his first money in the 90?s with a tire business in Moscow. Later he started trading raw materials. As early as 1992, a criminal investigation was opened against him for the disappearance of 55 rail cars of fuel and diesel. However, this case was later dropped. Abramovich used his contacts which enabled him to exploit the brittle law system in the Gorbachev-Yeltsin transition and to earn good money by trading on price differences of raw material between the Soviet Union and Western markets.
His friend and mentor was Boris Berezovsky, at that time the most influential oligarch in Russia. It was him who introduced Abramovich to the Yeltsin family. In 1995 Berezovsky persuaded the Russian government to create a new company, consisting of some of the most valuable assets the old Soviet oil industry had to offer, and sell it to him and Abramovich in a rigged auction for a mere $110 million. Within a few years, it was uncovered that the company was worth several billions. At the end of the 90?s, as Berezovsky?s influence began to vanish, Abramovich took advantage of the power vacuum and snapped up further national Russian assets.
As he started to operate internationally, a web of several onshore companies was established to facilitate the oligarch?s business interest. One of these companies was the Runicom, based in Switzerland. Runicom acted as a trading arm for Sibneft. This included selling crude oil to refineries and bartering oil products for other goods. The company was soon connected to a money laundering scandal. It was looked at by Swiss investigators for its role in transactions where $15 billion of Russian money was laundered through US banks. The whole investigations were complicated by a web of holding companies. Runicom was for example owned by the Valmet Group, which was itself partly owned by Menatep, a Russian financial company.
In February 2000, Abramovich launched his second great coup, after the Sibneft purchase. The Russian aluminum industry has long been a battlefield of different clans. It is estimated that around 100 aluminum executives were murdered during the 90?s. In 2000 he faced the most powerful men of the industry, Oleg Deripaska, who controlled Siberian Aluminum, as well as Lev and Mikhail Chernoi who owned Trans World which was in possession of Krasnoyars Aluminium and Bratsk Aluminum. The outcome of this meeting was the establishment of Russian Aluminum, which became Russia?s biggest company at that time. Deripaska was running the new company and Abramovich remained a sizable shareholder.
During the 90?s, a practice called tolling was very famous in the Russian aluminum industry. Russian companies sold their goods to owned offshore companies at artificially low prices. These offshore companies sold the good on world markets and the gain was realized in low-tax havens. Yeltsin, who counted the oligarchs to his ally?s accepted the technique. The already mentioned Trans World was investigated by UK, German and Swiss authorities in 2000, at a time the company was owned by Abramovich. TW was accused of laundering $7 billion under the Chernois?, the former owners. The group owned a web of more than 100 trading companies and banks.
Today, Roman Abramovich owns over 80 percent of Sibneft, 50 percent of Russian Aluminum (Rusal) and 26 percent of Aeroflot, the Russian national airline. The assets are hold through Millhouse Capital, a British registered company.
Abramovich?s ambitions did not stop with business however. In December 2000, he became, with 92 percent of the votes, Governor of Chukotka. The province lies 100 kilometers north of the Arctic Circle and borders the Bering Strait, which parts Russia and the United States of America. The province has only 73?000 inhabitants. By moving to the province, he added $30 million tax revenues to Chukotka?s small budget of $65 million. With him, Abramovich brought 80 employees from Sibneft to run the region. He provided for necessary food rations, built houses and public infrastructure and send 8?500 children from Chukotka to the Black Sea for holidays. Everything was financed out of his private fortune. Despite his good will, he was criticized by the local population for not taking into account the way of life of the local population. It was widely expected that the region should be springboard for a career in national politics.
Very soon after the publication of the Chelsea deal, the British government announced that it will investigate whether Roman Abramovich has sufficient business credentials to control and run a soccer club. As soccer plays a significant social and cultural role in England, influencing the life of a lot of people, the government wants to be sure that Abramovich is a proper person. There will be another investigation by the Financial Services Authorities. They will have a look at the share trading in the days before the bid became public. After the announcement of the purchase, Chelsea?s shares climbed by around 40 percent.
When Abramovich was asked why he is to buy Chelsea, he plainly explained that the purchase of the club was for his own pleasure. Friends indicated that Abramovich likes a challenge, what the involvement in the British soccer league definitely is. If the transaction is somehow connect to recent power struggles within the Kremlin has to be observed and can not be concluded at the moment.
Author: Tatyana Zaharova
