Oleg Deripaska, Organized Crime, and Paul Manafort’s Introduction to Ukraine
This is the second part of a larger series about Paul Manafort, Russia and the Struggle for Ukraine. While reading the earlier entries to this series is not necessary, it is recommended.
Click here to read Part 1 of this series, covering Paul Manafort’s early career.
This article is an excerpt from my book, While We Slept: Vladimir Putin, Donald Trump, and the Corruption of American Democracy, available here.
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Paul Manafort’s introduction to Ukrainian politics was facilitated by the Russian billionaire and aluminum magnate Oleg Vladimirovich Deripaska. This, the second article in a series examining the larger story of Paul Manafort and his activities in Ukraine, covers the chain of events that led to Manafort working for Deripaska.
It further details Deripaska’s remarkable rise through the violent privatization of the Russian aluminum industry to become one of Russia’s most powerful oligarchs, his alleged ties to Eurasian Organized Crime, and his utilization of the Washington, D.C. lobbying apparatus.
Deripaska later achieved international infamy for the role he played in the Russian influence operation targeting the 2016 American presidential election.
Manafort was connected to Deripaska through his business partnership with the lobbyist and political consultant Rick Davis.
Like Manafort, Davis has a long pedigree in Republican politics. He started out as the national field director of the College Republican National Committee during Ronald Reagan’s successful 1980 presidential bid. During Reagan’s presidency, he worked in a number of different capacities in the White House.
In 1996, Davis worked alongside Manafort on Republican Senator Bob Dole’s presidential campaign. Both occupied senior positions on the campaign, Manafort took charge of the Republican National Convention in San Diego, while Davis served as Dole’s Deputy Campaign Manager.
In the same year they worked on the Dole campaign, Manafort and Davis set up the political consulting and lobbying firm Davis Manafort Partners (DMP). From the beginning, the new firm aggressively sought lucrative work abroad. Manafort already had a well-deserved reputation for courting foreign clients of ill-repute. His colleagues on the Dole campaign poked fun at the international man of mystery persona Manafort projected.
“We fondly used to refer to him as ‘The Count’ — ‘The Count of Monte Cristo’” recalled Scott Reed, Dole’s campaign manager. “It was just the whole air about him.”
Manafort and Davis shared the same jaded view of the world.
“We’re more in the deal business,” Davis told James Harding, author of Alpha Dogs: The Americans Who Turned Political Spin Into A Global Business, suggesting that the real spoils come after an election is won. “The thing I love is that the political elites and the economic elites in every other country but the United States of America are the same. So if you go to Nigeria or Kenya or Ukraine or any place, the people who are the elected officials and running the elections are the richest people in the country, who own all the assets.”
Following Dole’s failed presidential bid, Manafort and Davis leapt back into lobbying. In 2003, Davis was summoned to a secretive meeting at a hedge fund in Midtown Manhattan. Upon his arrival, he found himself face-to-face with the Honorable Nathaniel Philip Victor James Rothschild, scion and heir to the British branch of the fabulously wealthy and storied Rothschild banking dynasty.
Nat, as he was known, was an Oxford-educated, jet-setting playboy known for youthful excesses that included eloping with a socialite and supermodel at the age of 23 in what amounted to a short lived marriage. The young Rothschild even briefly dated Ivanka Trump.
The Rothschilds, it should be noted, have famously and continuously been the subject of unfounded, anti-Semitic conspiracy theories, none-of-which are endorsed here.
Nat shed his youthful indiscretions and developed a fiery ambition to live up to his family name. Opportunity and the promise of extraordinary returns on investments arrived from the East.
One of Rothschild’s friends in London was the Russian oligarch, billionaire, and Putin-ally Roman Abramovich. The two were often seen together watching Chelsea football matches from Abramovich’s private box. The Russian oil-and-metals billionaire owned the team. Through this relationship, Nat Rothschild met and became the chief advisor to one of Russia’s richest oligarchs, the aluminum magnate Oleg Deripaska.
OLEG DERIPASKA: THE EARLY YEARS
Oleg Deripaska was born on January 2nd, 1968. Dzerzhinsk, the city of his birth located in Krasnodar in southwest Russia, was named after the founder of the Cheka, the first Soviet secret police and intelligence organization.
His father died when Deripaska was four years old and, despite being born into a Jewish family, he was raised by his grandparents on a traditional Cossack farm. His Cossack-influenced upbringing left an enduring impact on Deripaska.
“We are Cossacks of the Russian Federation,” he once said. “We are always prepared for war. This is a question of being able to deal with problems and any situation. It is the case that difficulties are not a catastrophe.”
After a brief stint in the Russian military, Deripaska graduated from Moscow State University in 1993 with a degree in physics. He spent the years following the collapse of the Soviet Union in desperate straits.
The tough, smart young Russian with cold blue eyes was nothing if not ambitious. A workaholic, Deripaska worked 14–16 hours a day. As an undergraduate, he had grown fascinated with international metals trading and invested his life savings of $2500 to start his own company.
Sometime between October 1993 and May 1994, Deripaska met and befriended Mikhail Chernoy in London. While the two would later have an acrimonious falling out, Chernoy was a pivotal figure in Deripaska’s early rise to prominence.
Chernoy was a major player in the wild post-Soviet Russian metals market. Through this relationship, Deripaska rose to become the most powerful player in the aluminum market, Russia’s largest industry behind oil and natural gas. Before he did so, he had to survive the “Aluminum Wars.”
OLEG DERIPASKA, ORGANIZED CRIME, AND THE RUSSIAN ALUMINUM WARS
Of all the privatizations in Russia during the 90s, the aluminum market was the most deadly. The story of the violent privatization of Russia’s aluminum industry offers insights into the rise of the Russian oligarch class, and the role Eurasian Organized Crime played in the process.
Prior to meeting Deripaska, Chernoy was already a major fixture of the Russian aluminum industry.
Chernoy (A.K.A. Michael Cherney/Mikhail Chorny) was born in Tashkent, Uzbekistan in 1952, then a Republic of the Soviet Union. After a stint with the Red Army, Chernoy returned to Tashkent and established an illegal gambling ring that eventually made enough money that he was forced to pay off the local police.
Chernoy became involved in a scheme that consisted of purchasing leftover raw materials from Soviet factory managers and using them in illegal private workshops to create products to sell on the black market. However, satisfying the local black market could only earn so much. The real money lay in establishing an international operation that could take advantage of the artificially low prices within the USSR and sell at a massive mark up on the global market.
In 1988, Chernoy entered into a partnership with a Ukrainian named Semyon “Sam” Kislin, serving as the manager of Kislin’s U.S.-based trading company Trans Commodities.
Kislin had emigrated to the United States from Odessa, Ukraine in 1972 and, after a brief stay in Boston, established himself in Brighton Beach, Brooklyn. Kislin and his partner, the Georgian-born Tamir Sapir (A.K.A. Temur Sepiashvili), founded an electronics store called Joy Lud and began a lucrative trade exchanging Western electronic goods for cheap Soviet commodities.
One of Joy Lud’s early customers was a young, up-and-coming real estate developer named Donald J. Trump, who purchased televisions from Joy Lud for his first major development in Manhattan, the Grand Hyatt. Kislin and Sapir, both of whom later became billionaires, maintained a relationship with Trump for decades.
Kislin became a significant donor to New York Mayor Rudy Giuliani. According to author Catherine Belton in her indispensable book Putin’s People: How the KGB Took Back Russia and Then Took On the West, neither Kislin nor Sapir would have been allowed to leave the Soviet Union to set up businesses in the U.S. without the permission and support of the KGB.
As Chernoy gained access to international markets, his fortune swelled and he grew more ambitious. Later reports by both the FBI and Interpol claim that Trans Commodities was used for money laundering purposes by both Mikhail and his brother Lev Chernoy while they set about seizing control of the Russian aluminum industry.
An FBI report claimed that Mikhail Chernoy was “doing business as Transcommodities [sic], a New York based trading company which is known to have laundered millions of dollars from Russia to New York.”
In a sworn court declaration, former-FBI Agent and Eurasian Organized Crime specialist Robert A. Levinson testified that Mikhail Chernoy was “protected” outside of Russia by the powerful Moscow-based organized crime syndicate the Solntsevskaya Bratva and within Russia by another Moscow-based organized crime group, the Izmailovskaya Bratva.
The Izmailovskaya criminal syndicate is allegedly connected to Russia’s intelligence services. One of the Izmailovslaya’s leaders was Anton Malevsky, a close partner and business associate of Chernoy’s.
Thus with strong trading contacts abroad and powerful criminal connections within Russia, Chernoy approached deep pocketed foreign interests to help them swoop down upon the Russian aluminum industry from abroad.
Soviet heavy industry was fed aluminum by vast smelters located in far Eastern industrial centers such as Kransnoyarsk, Sayansk, Bratsk and Novokuznetsk.
The dissolution of the USSR was catastrophic for Russia’s aluminum industry for two basic reasons. First, the industry’s traditional main customer, the Soviet military, no longer existed and the new Russian military was a shell of its former self. Second, the primary sources of alumina necessary for the smelting process now existed outside the country in newly independent Kazakhstan and Ukraine.
From this desperate situation one man saw an extraordinary opportunity.
“I was the only westerner to succeed in a place that’s like a toilet,” David Reuben later said of his Russian adventures, “and you always come out of a toilet with a smell.”
Reuben was chairman of the London-based Trans World, a metals trading company that had purchased aluminum from the USSR since the 1970s.
According to a 1998 report by the World Bank, Trans World was said to be founded partially through seed capital provided by the fugitive commodities trader Marc Rich.
Reuben was one of the first foreigners to realize that if he provided the smelters with alumina, he could buy the aluminum they produced cheaply and sell it abroad at international prices, making a fortune in the process. The system became known as “tolling.”
Joined by his brother Simon, in 1992 David Reuben set up a Trans World office in Moscow and was quickly approached by Mikhail Chernoy and his brother Lev.
In addition to Mikhail’s alleged connections to the most powerful criminal syndicates in Moscow, the Chernoy’s also enjoyed powerful political patrons including Oleg Soskovets, the chairman of the Russian Committee on Metallurgy, and Shamil Tarpishchev, an acquaintance from Tashkent who coached Boris Yelstin in Tennis.
With these powerful alliances in place, Trans World set about buying stakes in and establishing tolling contracts with ten of the largest aluminum factories in Russia between August and September of 1992.
The struggle for control of the various smelters across the country quickly turned deadly. The worst violence occurred in Krasnoyarsk, where Trans World came into conflict with the ruthless Anatoly Bykov.
Bykov, a former high school PE teacher who set up a gang of former athletes, had initially been hired by Mikhail Chernoy to guard the Krasnoyarsk smelter. In this capacity, he wiped out the local Vor v Zakone, the name for the traditional Russian criminal class, in a ruthless murder campaign. However, Bykov turned on Chernoy and took control of the plant himself and bodies began to fall left and right.
While Trans World was initially unable to root Bykov and his heavily armed minions out of the plant itself, potential buyers of their aluminum started conspicuously being assassinated.
The Chernoy’s and Trans World’s deadly conflict with Bykov is detailed in reporter David Satter’s book Darkness at Dawn: The Rise of the Russian Criminal State.
Vladimir Yafyasov, a bank vice-president who had been named deputy director of the Krasnoyarsk plant under Bykov was sprayed with gunfire while in his car on the evening April 10th, 1995. Three months later, a close banking associate of Yafyasov’s, Oleg Kantor, was found in his dacha with a knife sticking out of his chest, having been stabbed dozens of times and had his throat cut from ear to ear.
Later that year, the body of Felix Lvov, who served as a representative of AIOC, a U.S.-based metals trader operating in Russia and Trans World’s main competitor, was found by the side of a highway riddled with bullets after having been abducted from Moscow’s airport by men identifying as FSB agents (the FSB is the domestic successor agency to the KGB).
A witness in a later court proceeding held in Stuttgart, whom German judges deemed credible, testified to having heard Mikhail Chernoy brag about “having killed” Lvov.
In addition to his role representing AIOC, Lvov was also a key witness in an inquiry involving widespread theft from the Russian Central Bank. According to the investigative committee of the Russian Ministry of Internal Affairs, between $135 and $225 million was defrauded from Russia’s Central Bank by the sending of false telegrams telling various branches to make wire transfers to private parties.
In written parliamentary testimony, Interior Ministry senior investigator Sergei Glushenkov stated much of the money used by the Chernoy’s to make the initial purchases that allowed them and Reubens to seize control over large swaths of the Russian aluminum market came from the Central Bank scheme.
Under the threat of investigation and potential arrest in Russia, the Chernoy brothers and their partner, the alleged Izmailovskaya criminal syndicate leader Anton Malevsky, fled to Israel in the Spring of 1994 and were forced to conduct their affairs from abroad.
Later that same year, Oleg Deripaska leveraged his alliance with Mikhail Chernoy and Trans World to be made the manager of the Sayansk aluminum plant in Siberia.
Deripaska used his perch in Sayansk to establish the Sibirsky Aluminum Group in 1997. Shares of the company were held by a Liechtenstein-based foundation called Radom, with 40% held by Deripaska, 40% by Mikhail Chernoy, 10% on Anton Malevsky’s behalf by his brother Andrei and 10% by Sergei Popov.
After the height of the violence Aluminum Wars took place in 1995, the latter half of the 90s saw the consolidation of the industry. Increasingly viewing their relationship with Mikhail Chernoy as a liability, in 1997 the Reuben brothers paid him $400 million to sever all ties with Trans World.
1997 also marked the high-water mark of Trans World’s influence in Russia, during which time it produced half of Russia’s aluminum, a fifth of its steel and enjoyed sales of over $6 billion.
In the years that followed, Trans World came under intense pressure from all sides as it was viewed as a foreign carpetbagger. Deripaska began pushing Trans Worlds interests out of Sayansk and establishing himself as the premier executive in Russian aluminum. In 1999, Deripaska launched a successful campaign against the practice of tolling to further weaken Trans World’s position in Russia.
In 2000, Trans World sold its Russian holdings to Millhouse Capital, a company controlled by Roman Abramovich, the billionaire owner of the Russian oil giant Sibneft. Abramovich then merged his aluminum assets with Deripaska and Rusal was created, becoming what was at the time the largest aluminum company in the world.
By this point, Deripaska was rising rapidly in the Russian power structure and becoming ever closer to the Kremlin.
DERIPASKA RISES IN THE RUSSIAN POWER STRUCTURE
In 2001, Deripaska married Polina Yumasheva, daughter of the former head of Yeltsin’s government Valentin Yumashev. As Valentin had married Yeltsin’s daughter Tatyana, that made Deripaska’s new wife Yeltsin’s step-Granddaughter. Thus, Deripaska had effectively married into “The Family” that had run Russia for nearly a decade.
Deripaska also made sure to keep on the good side of Vladimir Putin when he succeeded Yeltsin as the Russian President and Head of State.
“I don’t separate myself from the state,” Deripaska told The Financial Times in 2008. “I have no other interests.”
Deripaska further ensconced himself in the upper levels of the Russian power structure by purchasing a home in the Gorki-2 village, a fashionable part of the Rublyovka western suburb of Moscow once directly administered by Cheka head Feliks Dzerzinksy and favored by the leadership of the security services.
Three of Deripaska’s neighbors included Yevgeny Lovyrev, head of the FSB’s personnel office, Vyacheslav Volokh, former chief of the FSB’s Antiterrorist Center and Sergey Sishin, head of the FSB’s Internal Security Directorate.
“Deripaska enjoys a favorable relationship with President Putin,” then-U.S. Ambassador to Moscow William Burns, who is currently the Director of the Central Intelligence Agency, wrote in a leaked 2006 diplomatic cable. “[H]e is more or less a permanent fixture on Putin’s trips abroad, and he is widely acknowledged by our contacts to be among the 2–3 oligarchs Putin turns to on a regular basis.”
The establishment of Rusal and the consolidation of the Russian aluminum industry should be seen in the context of a general move by the Kremlin during Putin’s first term to place friendly assets in control of strategic sectors of the Russian economy. Deripaska emerged from this process as the richest man in Russia and Rusal controlled a significant stake in the global aluminum supply. However, he had one major problem.
DERIPASKA’S TIES TO ORGANIZED CRIME AND THE U.S. VISA BAN
As far back as 1998, the United States Department of Justice suspected Deripaska of ties to Anton Malevsky and had banned him from entering the country. The Visa ban infuriated Deripaska, who was keen on gaining respectability in international business circles and launching Rusal on the London Stock exchange.
Malevsky, a veteran of the Soviet-Afghan war and a former member of the Russian special forces, died in a parachuting accident in South Africa in November 2001. The Times of London referred to him as the “guiding spirit” of the Izmailovskaya Bratva.
Malevsky was a frequent visitor to offices shared by Deripaska and Chernoy. The Russian interior ministry has claimed that in 1995 alone, the Izmailovskaya were responsible for 150 violent deaths. Andrei Malevsky has said that his brother and Deripaska were close, claiming that Anton stayed in Deripaska’s home after being kicked out of Israel in the late 90s.
“Anton was always speaking good words about Oleg Deripaska,” Andrei told The Financial Times. “They had very businesslike relations.”
As recently as November 26th, 2019, the Transborder Corruption Archive, a project run by the EU-Russia Civil Society Forum’s Expert Group on Combating Transborder Corruption, translated a report by Spanish law enforcement, which has been particularly active in prosecuting Eurasian Organized Crime.
“Michael Cherney [A.K.A. Mikhail Chernoy] and Oleg Deripaska are directly related to the Russian organized crime group Izmailovskaya where Mr. Cherney is an absolute leader of the economic section. Mr Deripaska built his first fortunes, firstly, through one or more controlled companies that were used to meet certain criminal purposes of the organization, and secondly, designing dirty money laundering schemes.”
The report continues: “Deripaska is currently making a special effort to dissociate himself entirely from the criminal circles with which he collaborated previously. And as indicated above this is the case of Cherney and Izmailovskaya. To be exact, the main purpose of this attitude is to achieve a relevant role in the group of oligarchs closest to the Russian administration. For that he tries to play the same role as the oligarch Roman Abramovich who is attributed the role to manage the private economic interests of Vladimir Putin.”
Despite the U.S. visa ban, Deripaska set about buying himself legitimacy.
In April 2003 he dropped an estimated £17 million on a six-story, 11-bedroom Regency townhouse in Belgrave Square, London. Having been educated in the British public school system, Deripaska’s wife Polina was something of an Anglophile and hired an English nanny for their two children. Graham Bonham-Carter, cousin of the actress Helena, was hired as the household manager.
Deripaska, now the richest man in Russia, owns properties in Kiev, Beijing, Sardinia and New Delhi.
That same year, 2003, Deripaska met the influential and secretive British banker Lord Jacob Rothschild and befriended his only son Nat Rothschild, an ambitious young heir with an almost mythic legacy to live up to.
Deripaska and Nat Rothschild met regularly at a grandiose home situated next to St. James’s Palace owned by the Rothschilds that would serve as Deripaska’s de facto office in London. Nat would go on to become Deripaska’s chief advisor, providing the Russian oligarch with everything from investment advice to suggestions related to his American visa ban.
It wasn’t just a one way street, the young Rothschild needed Deripaska’s powerful connections to help his hedge fund Atticus gain access to lucrative opportunities in the former Soviet Union. Nat Rothschild and Oleg Deripaska’s relationship is covered in Mark Hollingsworth and Stewart Lansley’s 2010 book Londongrad: From Russia with Cash; The Inside Story of the Oligarchs.
According to one London banker, the Rothschild name “was crucial in making Deripaska respectable.”
In addition to forging powerful connections in London, Deripaska used his wealth to throw his weight around Washington, D.C.
Still smarting from a visa ban that was hurting his business and worse, his international reputation, in 2003 Deripaska paid $300,000 to the law firm Alston & Bird and hired former Republican presidential nominee Bob Dole as his lobbyist. Dole’s task was simple: lobby lawmakers and the DOJ to reverse the visa ban.
It was in this context that Nat Rothschild, in his capacity as Deripaska’s advisor, met with Rick Davis, Dole’s former Deputy Campaign Manager and eventually hired Davis Manafort Partners.
In early 2004, Rothschild invited Rick Davis to the Moscow headquarters of Deripaska’s holding company Basic Element. Nat introduced Davis to Igor Giorgadze, a former Georgian Minister of State Security.
The former intelligence chief stood accused by Georgian authorities of attempting to assassinate the previous Georgian President Eduard Shavardnadze, a claim he denied.
“I can prove that I did not try to kill Shevardnadze,” Giorgadze told an American researcher. “I was trained in Department Thirteen of the First Chief Directorate of the KGB — executive actions, assassinations, wet works. I am an expert in these things. The Georgians say I tried to kill Shevardnadze. But Shevardnadze is not dead. As a result, the only reasonable inference is that I did not try to kill him. Because if I had tried, he would be dead.”
Giorgadze’s successor as Minister of State Security accused him of masterminding the 1993 murder of Freddie Woodruff, the CIA’s top man in Georgia.
Since 1995, Giorgadze had remained in exile in Russia where he had set-up a Russian-backed political party. However, following the November 2003 Rose Revolution in Georgia, the first of a series of so-called “Color Revolutions” which would culminate in Ukraine, Deripaska wanted to pursue a pro-Russia strategy within the country and use his international representatives to do it. It is almost inconceivable that Putin was not aware, if not in some way directing the plan.
In a leaked email that wound up on Wikileaks, Stratfor analyst Lauren Goodrich described how Deripaska had told her he had established himself “to be indispensable to Putin and the Kremlin.”
The first part of the plan consisted of having Rothschild invest in Georgian vineyards and then lobby the Georgian government to allow for Giorgadze’s return. U.S. Ambassador to Georgia Kenneth Yalowitz has noted that Giorgadze would have reliably worked in Russia’s interest at a time when Georgia was seeking to take a more Western-friendly path.
Later in 2004, Davis and Rothschild traveled to Tbilisi where they tried to convince the new Georgian President Mikheil Saakashvili over dinner to allow for Giorgadze to return. Saakashvili, who had no love for the Russians, refused, effectively ending the lobbying effort.
While Paul Manafort had no known involvement in the Georgia campaign, global events would soon transpire that would thrust him to the heart of Davis Manafort Partner’s relationship with Deripaska.
In November of 2004, the Orange Revolution in Ukraine dominated headlines the world over and sent shockwaves across the Russian political establishment. Both Rothschild and Deripaska had much personally at stake in Ukraine, the former in the form of private equity investments and the latter owned an aluminum smelter in the country.
From that point on, Davis Manafort Partners was to focus primarily in Ukraine, and Paul Manafort took the lead in the project.
The next installment of this series will provide crucial context on the historical and political events that led to the Orange Revolution in Ukraine and set the stage for Paul Manafort’s entry into Ukraine’s domestic politics.
Part 3 explains how corruption and organized crime seized control of post-Soviet independent Ukraine, and led to the Orange Revolution.
Part 4 shows how Paul Manafort helped get Viktor Yanukovych, the Kremlin’s preferred Ukrainian candidate, elected as President.
Part 5 describes Paul Manafort’s activities on behalf of Oleg Deripaska outside of Ukraine, and how Deripaska uses his wealth to spread influence abroad.
Part 6 explains Paul Manafort’s money laundering and corrupt business activities with Oleg Deripaska and the Ukrainian oligarch Dmytro Firtash.
Part 7 shows how Paul Manafort and the law firm Skadden Arps laundered Viktor Yanukovych’s reputation.
Part 8 reveals how Manafort assembled a public relations team to smear Viktor Yanukovych’s political opponents.
Part 9 explains how Manafort lobbied on behalf of Viktor Yanukovych in the halls of the Capitol in Washington, DC.