Financial Times Reports on Putin’s Palace

Palace suspected to be built for Vladimir Putin. Source: RuleaksLast December, Russian businessman Sergei Kolesnikov posted an open letter to President Dmitri Medvedev alleging that a vast amount of taxpayer money had been siphoned to fund a grandiose mansion for Prime Minister Vladimir Putin on the Black Sea. Pictures of what is suspected to be the palace itself were leaked online a month later, and the incident has stood ever since as the embodiment of corruption at its worst in Russia today. But while other evidence has since come out to corroborate Kolesnikov’s account, the prime minister continues to deny any connection to the “dacha” and little has been done to investigate the matter in any serious way.

Where the Russian justice system has failed to step up to the plate, the Financial Times has taken up the slack:

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Documents from Mr Kolesnikov, together with a Financial Times investigation, help to lift the veil on the history of Bank Rossiya, whose shareholders include several men with close links to Vladimir Putin, Russia’s supreme leader, including the son of his cousin. Yury Kovalchuk and Niko­lai Shamalov, two of its biggest shareholders, were co-founders with Mr Putin of a lakeside dacha enclave outside St Petersburg.

These men from Russia’s second city are seen by many businessmen and bankers as the core of a new generation of Putin-era oligarchs, combining wealth with links to the country’s top leadership just as their predecessors during the Boris Yeltsin years had done. This is despite Mr Putin’s pledge nearly 12 years ago to eliminate oligarchs as a class.

Now that Mr Putin plans to return as president in elections next March, after four years as prime minister under President Dmitry Medvedev, claims of a new system of crony capitalism are under scrutiny.

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The paper trail Mr Kolesnikov has disclosed to the FT appears to show for the first time how two Bank Rossiya shareholders – Mr Shamalov and Dmitry Gorelov, a former KGB colonel – received via an offshore company funds originally donated for equipment for St Petersburg hospitals, just as they bought their bank stakes.

The documents then appear to show that these same funds and offshore companies may have helped finance the first in a string of Bank Rossiya acquisitions of financial assets from Gazprom, the state-controlled gas producer. Some investors allege the deals that followed were quasi-privatisations that helped to drain billions of dollars in value out of a gas group that had come to symbolise Russia’s commodities-fuelled resurgence. Bank Rossiya rejects this as “nonsense”, saying its growth is due to its professional management and successful strategy as a universal bank. The bank’s assets stood at Rbs274bn ($8.9bn) by October 1, up from Rbs6.7bn at the start of 2004 – a compound annual growth rate of more than 60 per cent.

Read the full article at the Financial Times.