Paul Manafort, Skadden Arps and the Laundering of a Kleptocrat’s Reputation
This article covers how Paul Manafort and the law firm Skadden Arps worked together to launder the reputation of the pro-Kremlin Ukrainian President and kleptocrat Viktor Yanukovych after he selectively prosecuted his chief domestic political rival Yulia Tymoshenko. It is the seventh article in a series examining Manafort’s work in Ukraine. While it is not necessary to read the earlier entries, it is recommended. There is a brief summary of the previous articles below.
Part 1 covers Paul Manafort’s early career as a Republican political consultant and lobbyist.
Part 2 explains how Manafort met the organized crime-linked Russian oligarch Oleg Deripaska and how Deripaska introduced Manafort to Ukraine.
Part 3 explians 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.
Summary of Past Articles: Paul Manafort is a Republican political consultant who has provided services to foreign dictators. After working on Bob Dole’s presidential campaign with Republican Rick Davis, they formed the consulting firm Davis Manafort Partners. DMP was hired by the Russian oligarch and Putin ally, Oleg Deripaska, to represent his interests abroad. Manafort was sent to Ukraine to advise the Kremlin’s preferred presidential candidate Viktor Yanukovych after his fraudulent election victory had been overturned by the Orange Revolution. In a stunning turn around, Manafort succeeded in helping get Yanukovych elected as the Ukrainian President. In addition to Ukraine, Manafort represented pro-Kremlin interests in other post-Soviet states on behalf of Deripaska. Meanwhile, Deripaska wined and dined American and EU officials to promote his business interests.
This article is an excerpt from my book, While We Slept: Vladimir Putin, Donald Trump, and the Corruption of American Democracy, available here.
Paul Manafort was initially sent to Ukraine to resuscitate the political career of Viktor Yanukovych, the Kremlin’s preferred candidate for the Ukrainian presidency.
In 2004, Ukrainian had indignantly taken to the streets to protest Yanukovych’s “victory,” which was marred by rampant election fraud. The Orange Revolution, as it came to be known, led to Yanukovych’s political downfall before he ever occupied office. After his fall from grace, the general consensus was that Yanukovych’s political career was finished.
Then Paul Manafort arrived.
After reimagining his looks, message and building a team of international experts around him, Manafort transformed Yanukovych and in a stunning political come back, helped him get elected as Ukrainian president in 2010. Manafort’s work, however, was far from.
After succeeding in repackaging and selling Yanukovych to the Ukrainian people, he then launched a sophisticated lobbying campaign on behalf of the kleptocrat targeting officials and politicians in Washington, D.C. and EU capital Brussels.
At the same time Manafort was lobbying for Yanukovych abroad, the Ukrainian President was engaged in industrial-scale theft and embezzlement of his own country’s wealth and resources.
YANUKOVYCH CONSOLIDATES POWER IN UKRAINE
Back in the reigns of power, Yanukovych and his powerful oligarch allies acted quickly to consolidate their power. In September of 2010, Yanukovych fundamentally reshaped the Ukrainian Constitutional Court. A month later the court repealed reforms from 2004 that had been made to limit executive power.
Yanukovych emerged as the most powerful president since Kuchma. His financial backers, primarily the Donetsk Clan under the oligarch and Manafort-sponsor Rinat Akhmetov and the natural gas lobby under the leadership of the organized crime-linked Dmytro Firtash, were thrust into the highest echelons of power.
Akhmetov, Ukraine’s wealthiest oligarch, was a major financial backer of Yanukovych’s Party of Regions and was Manafort’s financial benefactor. Firtash had received billions of dollars worth of loans from banks tied to Vladimir Putin and was a known associate of the Eurasian organized crime boss Semyon Mogilevich.
Firtash allegedly fronted Mogilevich’s financial interests in the shadowy company RosUkrEnergo (RUE), a corrupt, organized crime-linked intermediary that sold natural gas between the Russian and Ukrainian state natural gas monopolies.
Serhiy Lyovochkin, a close ally of Firtash and the gas lobby, was appointed as the head of the newly empowered Presidential Administration. Lyovochkin was later one of the individuals, along with Akhmetov, who Paul Manafort had the alleged Russian intelligence officer, Konstantin Kilimnik, send internal Trump campaign polling data to during the 2016 election.
Firtash and Lyovochkin own villas a few dozen meters from one another on the Cote d’Azur in the French Riviera and it is believed that through a complex web of offshore shell companies Lyovochkin had financial interests in RUE.
Another close Firtash ally and member of RUE’s coordinating council, Yuriy Boyko, was appointed as the Minister of Energy.
Lastly, Firtash confidant Valeriy Khoroshkovksy was made the head of the SBU, Ukraine’s state security service.
Soon into his first term, Yanukovych purged the upper management of the Ukrainian state natural gas company Naftogaz and replaced it with cronies friendly to Firtash.
Under the previous administration, Prime Minister Yulia Tymoshenko attempted to remove RUE as a sales intermediary between Naftogaz and Russia’s Gazprom. In response, Firtash filed a lawsuit in the Stockholm Arbitration Tribunal. Following Yanukovych’s election, the lawsuit Firtash had filed in Stockholm now featured RUE on one side, and Firtash ally Yuriy Boyko on the other.
Under Boyko, Naftogaz changed its legal arguments in a manner favorable to Firtash. The verdict of the case, now little more than a farce, unsurprisingly went in RUE’s favor.
Christian Neef of Der Spiegel conducted a close investigation of how the Ukrainian government handled the lawsuit and after careful review of the case documents, stated the following, “There can be no other conclusion: Viktor Yanukovych, the President of Ukraine, served the commercial interests of an oligarch with whom he has close ties — at the expense of his own country. And, in doing so, he also did Moscow a favor.”
Dymtro Firtash’s incredible wealth was the product of sweetheart deals cut with Gazprom after Vladimir Putin had populated the Russian gas giant’s management and board with his subordinates. As such, many in Ukraine believed that Yanukovych’s extraordinary deference to the oligarch was in fact done for the benefit of his ultimate benefactor in Moscow.
Yanukovych took office determined to secure his own hefty piece of the pie. The close knit group around Yanukovych that under his tenure would engage in industrial scale looting and larceny came to be known, in an echo of the Yeltsin-era in Russia, as “The Family.”
Aside from Yanukovych himself, the central figure in “The Family” was his son Oleksandr, a dentist by profession.
Later Ukrainian authorities accused Yanukovych of stealing an almost unimaginable $37 billion from the state during his tenure as president. The forms this gargantuan theft took were manifold. There was, of course, the tried-and-true Ukrainian tradition of rent-seeking and skimming off the natural gas trade. Yanukovych also dispensed infrastructure contracts entirely at his discretion.
Swedish economist Anders Åslund has estimated that infrastructure-related corruption alone provided “The Family” with $2 billion in illicit proceeds per year.
Yanukovych also engaged in outright embezzlement from the State Tax Administration and the State Customs Committee, stealing during his time in office somewhere $3 and $5 billion.
“We cannot allow those who are turning public service into a feeding trough and destroying trust in the state to come to power,” Yanukovych shamelessly declared. “Everyone should realize that we’ll put an end to this forever.”
Few in the international community believed him. However, as Ukraine was the recipient of billions of dollars in foreign aid, Yanukovych couldn’t afford to let the West drift too far away. He had been managing a careful balancing act between Europe and the United States on the one hand, and Russia on the other.
Lucky for him, Paul Manafort had a plan.
MANAFORT, SKADDEN ARPS AND THE REHABILITATION OF YANUKOVYCH’S IMAGE IN THE WEST
After Yanukovych’s victory, Manafort gained unparalleled access to the innermost sanctums of the new President’s administration. He was granted “walk-in” privileges to his offices at any time.
Manafort became a regular at the Mezhyhirya Residence, a luxurious 350-acre former monastery that had been retrofitted with a golf course, equestrian club, yacht pier and ostrich farm among other extravagances that served as Yanukovych’s home. The two would play tennis together and occasionally swim naked with one another outside Yanukovych’s banya.
“You have to understand, we’ve been working in Ukraine a long time, and Paul has a whole separate shadow government structure,” Rick Gates once told a gathering of Washington lobbyists. “In every ministry, he has a guy.”
Less than two weeks after the election, Manafort sent Yanukovych an email with the subject line “PRIVATE & VERY CONFIDENTIAL” in which he laid out his strategy to promote the new Ukrainian leader to the West. He promised to “build a multi faceted plan to communicate your programs to key officials and institutions in Washington, Brussels, the IMF,” and to “target the international and business elites.”
As the plan was to unfold, Manafort would stay hidden in the background. “Publicly, I would not appear as a lobbyist for your Government. Those roles would be the firms that I bring in as your Government and Public Affairs consultants. In fact, I would be the point for all of these services.” The ultimate goal of the program, referencing the Orange Revolution, was to “ensure that you will never have to deal with a 2004 scenario again.”
Manafort’s lobbying plan unfolded against a backdrop of negotiations between the EU and Ukraine over a proposed Association Agreement that, were it signed, would significantly strengthen political and economic ties between the two.
Russia under Putin was developing its own Customs Union that it desired Ukraine to join and was vociferously opposed to further Ukrainian integration with Europe.
The EU Association Agreement had its roots back in 2008 while Tymoshenko was still Prime Minister. Yanukovych considered Yulia Tymoshenko his top political opponent in Ukraine.
Shortly after he gained control of the presidency, Ukraine’s courts engaged in what most in Europe and the United States viewed as selective prosecution against her. In 2011, Tymoshenko was arrested and charged on matters related to her natural gas negotiations with Russia. Her arrest outraged much of Europe, and threatened to derail the agreement entirely.
Manafort’s job was to manage Western perceptions and he assembled an extraordinary team to do just that.
As part of his effort to tamp down Western criticism of the selective prosecution of Tymoshenko, Manafort enlisted the powerhouse American law firm Skadden, Arps, Slate, Meagher & Flom (Skadden). The genesis of the partnership can be traced back to the Ukrainian oligarch and billionaire Victor Pinchuk.
Pinchuk is something of a chameleon in Ukrainian politics, often contorting himself to fit the needs of the moment. He rose to prominence by marrying Leonid Kuchma’s daughter, thus making one of Ukraine’s most notoriously corrupt leaders his father-in-law.
Under Kuchma, Kryvorizhstal, a vast state steel factory, was privatized and sold to Pinchuk and Rinat Akhmetov at a price his competitors complained was far below the market rate. In 2005, then Prime Minister Tymosheno criticized the deal as unfair. However, Pinchuck has also at times been a vocal proponent of further Western integration.
Pinchuk is perhaps best known in the West for his cozy relationship with the Clinton’s. Pinchuck has donated somewhere between $10 million and $25 million to the Clinton Foundation.
In 2011, Pinchuk lent his private jet to the Clintons so they could travel to Los Angeles for Bill’s 65th birthday party.
He had been introduced to Hillary Clinton through Douglas E. Schoen, a political consultant who at one time worked for Bill Clinton and who had been held on retainer by Pinchuk for $40,000 a month since 2000.
Between September 2011 and November 2012, Schoen arranged nearly a dozen meetings with the State Department while it was under the leadership of Hillary on behalf of or with Pinchuk to discuss the political crisis in Ukraine.
Several of the meetings Schoen and Pinchuk held were with Secretary Clinton’s Ukrainian-American aide Melanne Verveer, the State Departments ambassador-at-large for global women’s issues. Schoen has claimed that the purpose of these meetings was to press the U.S. to push the Yanukovych administration to free Yulia Tymoshenko.
This explanation is curious for two reasons. The first is that the freeing of Yulia Tymoshenko was already the stated policy of the U.S. Government. The second was that Schoen’s client, Victor Pinchuk, was engaged at that time in a clandestine effort to have a report prepared justifying and legitimizing her trial and arrest.
At some point in early 2012, Pinchuk reached out to Schoen to find a lawyer who could prepare a report examining the Tymoshenko trial.
“My client in Ukraine, Victor Pinchuck said he would like me to see to see if there was a high-quality lawyer who could potentially be engaged to do that project,” Schoen said in later courtroom testimony.
Schoen immediately thought of Greg Craig, a highly respected DC-attorney who he had worked with during Bill Clinton’s impeachment. Craig had graduated from Yale Law School, where he was in the same class as the Clintons, and would go on to enjoy an illustrious career, ultimately serving as White House Counsel to President Barack Obama from 2008 to 2009.
Schoen emailed Craig, asking him if he would be interested in taking on a project related to the Tymoshenko case in Ukraine. The two subsequently spoke over the phone while Craig was riding Amtrak’s express Acela to New York. After listening to Schoen, Craig said he would need assurances that he would have complete independence over the project.
In a later interview with the FBI, Craig told investigators he couldn’t recall whether there was any discussion over whether the Ukrainian government would want the report to conclude certain things. After explaining that his client Victor Pinchuk would be paying for the report, Schoen asked Craig to estimate how much Skadden would charge for the project. Craig estimated three million dollars, Schoen suggested he ask for four.
Schoen ended the call by telling Craig to expect to be contacted by Paul Manafort.
Craig met with Manafort in DC and they discussed his independence requirement and Craig’s desire not to have to register under the Foreign Agents Registration Act (FARA) as if he did so it could prevent him from working for the U.S. Government in the future.
Ultimately it was agreed that if Skadden received $150,000 up front, Craig would travel to Ukraine to discuss the project with Pinchuk. Following the meeting, Craig received a check for that amount from Schoen with money that had been routed from Pinchuk’s foundation.
The project aroused dissent within Skadden.
“The general view seems to be that this is a no-win situation,” Bruce Buck, the founding partner of Skadden’s London office, wrote to Craig in a February email. “If we come out that it [Tymoshenko’s trial] was NOT fair, they will not use our opinion and we could very probably be persona non grata for doing work there in the future. If we come out that it WAS fair, it will be viewed by Russia and others as a politically influenced opinion.”
Despite his reservations, Buck was ultimately non-committal. “We would prefer that you not do this, but there is not a conflict as such. If you decide to go ahead, please can you wall off the European partners so there are no issues going forward.”
Craig arrived in Kiev in April and was met by the alleged Russian intelligence officer, Konstantin Kilimnik, who had been deputized by Manafort to handle Craig’s logistics while he was in Ukraine. As Kilimnik shuttled Craig around Kiev, the Skadden lawyer noted his deep contacts within the Ukrainian government and would later claim to have been “very impressed” by him.
During the trip, Craig met with Pinchuk twice. Pinchuk made it clear that he did not want the “world” to know about his involvement and Craig agreed to maintain the oligarchs confidentiality. However, Craig was nonplussed when Pinchuk promised to provide an initial check for $1.5 million. Craig was expecting more, but kept his displeasure to himself.
“Paul I just met with [Pinchuck] who has been told by COS transfer 1.5m[illion]. This is not right and it is a serious problem for me” Craig wrote in an angry email to Manafort following the meeting.
“All was clear between us… I really don’t want to deal with this other kind of bullshit. We are going unless your side lives up to its commitments. If it is not 2 [million], we will leave tomorrow. Go home and say that we are lucky to be out of it.”
“You will have 2,” Manafort replied. “Some is coming another way.”
Some did come another way. $4 million was placed into an escrow account for Skadden via a Manafort-controlled Cyprus-registered shell company called Black Sea View Limited.
Skadden would ultimately be paid $4.6 million by Pinchuk for its work on the Tymoshenko report, while their ostensible public client, the Ukrainian government, would publicly report that they only paid the firm $12,000.
When Craig learned that $4 million had gone through he excitedly replied to Manafort, “You rock.”
Craig took on the job and stayed in Ukraine from April to August. In his engagement letter with Ukrainian government, Craig stipulated that Skadden was not going to look into whether Tymoshenko’s prosecution was “politically motivated”, but rather whether it was a “selective prosecution.”
It was a razor thin distinction, and Skadden ultimately found 10–15 local politicians who had been prosecuted on similar charges, but no high ranking federal officials.
The report ultimately concluded, in carefully worded language that subtly avoided whether there actually was any evidence that the trial was politically motivated, that “Tymoshenko has not provided clear and specific evidence of political motivation that would be sufficient to overturn her conviction under American standards.”
During his stay in Ukraine, Craig saw Manafort only a few times. He did visit Manafort once at the latter’s hotel room at Intercontinental in Kyiv, where he noticed an impressive computer system set up. Instead, Craig primarily interacted with Gates and Kilimnik, both of whom served as a conduit to Manafort.
Craig and Manafort did correspond over a different issue: securing a job for Manafort’s daughter Andrea.
Andrea Manafort was finishing her third year at Georgetown Law when her father contacted Craig and asked him to meet with her and see if he could get her a job at Skadden. After meeting with her, Craig arranged for Andrea to meet Skadden partner Mitchell Ettinger. As Ettinger was unaware of Manafort’s connection to the firm, following the interview he sent her a from rejection letter.
Manafort angrily responded to Craig in a May 29th email with the subject line “thanks for your help.”
“I see how Skadden knows how to show appreciation for a $4MILLION gift account,” Manafort wrote. He continued, saying it “goes without saying that I will push all future business to wherever [my relative] lands.”
“This could not have come at a worse time for our case,” Craig frantically wrote to Ettinger. “I wish someone had told me about this before sending out the letter.”
After explaining the situation to Manafort, Craig devised a memo that he shared with Ettinger arguing that Andrea Manafort should be hired.
At one point the memo read, “Paul has said that he would like to strengthen his relationship with Skadden, and he is likely to direct a lot of work our way if Andrea comes to Skadden.”
Ettinger forwarded the memo to a top partner in the firm and Andrea Manafort was hired that very day.
In the lead up to the reports release, Manafort hired Jonathan Hawker, a British public relations advisor, to devise a roll-out plan. In later court testimony, Hawker revealed colorful details about the inner workings of the team behind the report.
Manafort’s employee Rick Gates, who later worked alongside him on the Trump campaign, was referred to as “(P)Rick” by those in Hawker’s PR firm FTI Consulting.
“That’s what we called him,” Hawker said. “I’m afraid it was a routine name for the man.”
By the summer of 2012, Hawker was under pressure to devise a detailed PR plan for the report. His problem was that he hadn’t read it. Hawker asked Craig if he could see an advanced copy of the report but Craig refused.
Frustrated, Hawker alerted Rick Gates to the problem and shortly thereafter was contacted by Alex van der Zwaan, a Dutch Skadden associate aiding Craig who had served as a consultant for the Ukrainian Ministry of Justice and was fluent in Russian.
Alex van der Zwaan was also the son-in-law of German Khan, a Ukrainian-Russian oligarch and billionaire.
In addition to his official capacity under Craig, van der Zwaan worked closely with Gates and Kilimnik. Gates and the young associate discussed how to promote the report in a way that looked less damaging to the Yanukovych government by describing any malfeasance related to Tymoshenko’s prosecution as “procedural” errors.
Gates told van der Zwaan that he believed Konstantin Kilimnik was a “spy” with Russian military intelligence, a view he shared with Hawker as well.
Van der Zwaan invited Hawker to his hotel room in Kyiv. Hawker later explained, “He said to me, ‘There’s a copy of the report on my desk. I’m going to go out now for a period of time, half-hour. Do what you like and I’ll see you later.’ I took that as he wants me to read the report.”
After van der Zwaan left the room, Hawker began taking notes. “I thought it extremely unlikely that Mr. van der Zwaan would have authority from Greg, who just earlier told me I couldn’t have the report.”
After seeing the report behind Craig’s back, Hawker got to work devising a PR strategy, which consisted of “seeding” the report to select journalists, that would provide “an accurate characterization of the Ministry of Justice’s interpretation of the report.”
He later explained, “I’m a P.R. consultant. My job is to try and convey things in the best way possible in the interests of my client, and that’s what I’m doing.”
In the lead up to the report’s release, Craig’s private views on the matter were clear, writing in an email, “the evidence of criminal intent — i.e., that [Tymoshenko] intended to commit a crime — is virtually non-existent.”
That didn’t stop Craig from hand delivering the report to veteran New York Times reporter David Sanger when the report was finally released in December.
The response to Skadden’s Tymoshenko report from U.S. officials was swift and unequivocal.
Victoria Nuland, the Assistant Secretary of State for European and Eurasian Affairs called it “incomplete,” and said the report “doesn’t give an accurate picture.” She went further, saying “Skadden Arps lawyers were obviously not going to find political motivation if they weren’t looking for it.”
Former U.S. Ambassador John Herbst said Skadden “should have been ashamed” of the report, decrying it as “a nasty piece of work.”
According to Hawker, while Ukrainian officials initially were disappointed with the response to the report, they later came to view it as a huge success. The Ukrainian prosecutor general’s office invited Hawker and Craig to what the former described as a “medieval feast.”
Hawker described the festivities as such, “Following dinner, there was traditional music played, the music with everyone signing, including the [prosecutor general] and Craig.”
During the celebration, Hawker was presented with a strange award in the shape of a golden orb. When Craig received an award that consisted of two golden orbs, he and Hawkins laughed and commented that they looked like “bollocks.”
The Ukrainian prosecutor general explained that the two orbs represented equality between the prosecution and defense. Hawker joked that he was surprised the award wasn’t lopsided. Greg Craig agreed.
The next article in this series will examine how Paul Manafort orchestrated an extensive media blitz and lobbying campaign to promote the Yanukovych government in the West.
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.