The Questionable Ties Between Russian Oligarchs, Magnitsky Act, and Steele Dossier

Mikhail Khodorkovsky at Maidan in Kyiv, Ukraine, on March 9, 2014. (ВО Свобода, via Wikimedia Commons)

Commentary

Over two years into the investigation of alleged collusion between Russia and the Trump campaign, a new picture has started to emerge, one of Russian oligarchs and their connections to some of the key figures responsible for the collusion narrative.

Mikhail Khodorkovsky is the former head of Russian oil giant Yukos. Famously imprisoned by Putin in 2003 on fraud charges, Khodorkovsky appeared a sympathetic figure—portrayed as a victim of Putin retaliation. He was pardoned in 2013 and now resides in London. At the height of his power, Khodorkovsky was estimated to have a net worth in excess of $15 billion.

He obtained his wealth in a manner similar to that of many Russian oligarchs. In 1987, he founded Menatep, one of Russia’s first private banks. He used the bank to acquire stakes in companies that were being privatized at bargain-basement prices.

In 1996, Khodorkovsky paid $300 million for a 78 percent stake in Yukos Oil Company through an auction, using Menatep for the purchase. Yukos would be valued in excess of $40 billion in 2003. Menatep also organized the auction.

“Menatep Bank, owned by Khodorkovsky, organized the auction for Yukos Oil Company,” a report from Illinois State University says. “Khodorkovsky bought 45 percent of the shares for $150 million and another 33 percent in an investment tender for $150 million with the promise of another $200 million to invest into the company under one of his shell companies.”

The funding for the purchase of Yukos appeared almost as suspect as the auction process:

“It was unclear where Khodorkovsky got the money to buy Yukos. He had various international political and financial connections and claimed that most of the money was borrowed from various sources. One former bank official stated that he was buying Yukos with the money Yukos had accumulated from not paying their taxes.”

The manner in which many acquisitions were made, known as “loans-for-shares,” was simple and effective. Banks, controlled by oligarchs like Khodorkovsky, would make loans to the government, taking assets, such as factories, for collateral. The banks would run the businesses until the loans were repaid by the government. If the government defaulted, the banks had the collateral. The loans were rarely repaid.

Khodorkovsky remains a fierce opponent of Putin. He has also been mentioned as a possible future leader of Russia—an unlikely prospect. During a March 2017 interview with the Washington Times, Khodorkovsky framed the political situation—both here and in Russia—in simple and understandable terms:

“To some extent, [President Donald] Trump is president of the alt-elite, not the mainstream elite,” Khodorkovsky said, before connecting the situation to Putin’s, who he said has targeted alternative elites around the world in influence operations. “He tries to be generous to them, to build relations with them.”

Khodorkovsky, who has many sympathetic supporters within the media, had a simple message for Trump:

“I would tell him that the current American administration has created a crisis of sorts in the heads of America and the whole world.”

Khodorkovsky noted that Trump’s victory was unanticipated within the Kremlin:

“If Putin had any objectives whatsoever vis-a-vis that election, it was that when Clinton won—and everybody in the Kremlin was convinced Clinton would win—to create a couple of nice visible incidents in the U.S. featuring Trump’s losing supporters accusing Clinton of dishonest elections,” he said. “Your FBI director had more impact on the election than Putin.”

He was referring to former FBI Director James Comey, who announced, days before the November vote, a renewed probe of then-candidate Hillary Clinton’s use of an unsecured email server while she was secretary of state.

Seven months later, during an interview with NBC News on Oct. 17, 2017, Khodorkovsky was singing a very different tune:

“I am almost convinced that Putin’s people have tried to influence the U.S. election in some way. That Putin personally tried to cooperate with the Trump campaign to affect the election is a 9 out of 10. Whether or not that proposal was accepted, I would let the people responsible for investigating the matter answer that question.”

Khodorkovsky, like most Russian oligarchs, has his own ties to figures in the Trump–Russia narrative. His former head of human resources, Sergey Gorkov, met Jared Kushner at Trump Tower in New York in December 2017—a meeting that was used to push allegations of Russian ties.

During the interview, Khodorkovsky was careful to mention he believed that Gorkov met with Kushner on orders from either Andrey Kostin or Herman Gref. Both men run Kremlin-backed banks that were sanctioned by the Obama administration. Notably, the two bankers Khodorkovsky cited have been publicly linked to Trump.

Gref co-organized a 2013 dinner in Moscow for Trump to meet Russian businessmen. Aras Agalarov, Gref’s partner, was directly involved in “offering dirt on Hillary Clinton” to Donald Trump Jr. during the Trump Tower meeting in June 2016. Kostin was named by Felix Sater, a former FBI informant, as a potential source of funding for a Trump Tower project in Moscow.

Kostin hotly disputed Khodorkovsky’s claims, noting he has “never had discussions, or any other kind of communication, with Mr. Gorkov regarding a possible meeting with Mr. Kushner, and doesn’t understand the point such a meeting could have had.”

According to the article, Khodorkovsky’s aides said this was “the first time he has shared these details about Gorkov.”

Khodorkovsky expanded on his viewpoint that Putin is not the all-powerful, near-mythical figure portrayed by the media, in an interview with Politico.

“[Putin] does not run Russia outside the inner beltway of Moscow,” he said. “The pact that he has with those people who actually do run the various regions of the country is a rather simple one: You bring out the level of vote that I need for my purposes, and I let you do what you want to do in your region. That’s how it works.”

Khodorkovsky, like most Russian oligarchs, has some question marks surrounding his past. In 2015, he was formally accused of hiring an assassin in 1998 to murder Vladimir Petukhov, the mayor of an oil-rich town who had threatened to increase taxes on Khodorkovsky’s oil company. In 2007, Khodorkovsky’s head of security, Alexi Pichugin, was sentenced to life imprisonment for ordering three murders, including Petukhov’s. Khodorkovsky has denied any involvement.

Magnitsky Act

Khodorkovsky operates a project he has dubbed Dossier Center, which receives anonymous leaks to share with journalists. Unlike WikiLeaks, Khodorkovsky’s focus is more specific:

“Our ambition is not simply to expose information in general, but to use material relating to Putin’s circle and his allies so that they can be put on trial in Russia.”

Natalia Veselnitskaya, the Russian lawyer who met with Trump Jr. during the June 2016 Trump Tower meeting, was recently the subject of leaks from the Dossier Center. Interestingly, the Veselnitskaya leaks contained no information regarding the Trump Tower meeting, lending a certain level of credence to Veselnitskaya’s contention that both parties at the meeting quickly realized it was a waste of time all around. Nor was there any information contained in the leaks regarding Christopher Steele or his dossier.

Veselnitskaya has been an opponent of the Magnitsky Act, which has imposed visa bans and asset freezes on Russian officials. Some portray the act as an overdue penalty against Russian officials. Others have called it a “measure that effectively ended post-Cold War hopes for normal relations between Washington and Moscow.”

The Magnitsky Act was named after Sergei Magnitsky who, according to billionaire and former American citizen Bill Browder, was a lawyer who died as a result of severe beatings while held in jail. Others have stated that Magnitsky was actually an accountant who “died of natural causes as a result of inadequate medical treatment.”

Interestingly, the Magnitsky Act specifically condemns prosecution of Khodorkovsky, while simultaneously singling out his political enemies for visa bans and asset freezes. It strikes as disturbing that an official act was passed by Congress—directly affecting foreign relations with a major nuclear power—when basic facts surrounding its genesis remain in real question.

Browder is the founder of Hermitage Capital Management and was active in Russia during the privatization boom. He has been portrayed by some as a human rights activist, while others have darker views of his activities. He is wanted by Russian authorities in regard to several tax cases and claims of financial fraud.

Unsurprisingly, Khodorkovsky and Browder have both been supporters of the Magnitsky Act, which has directly targeted their political enemies and provided a shield from Russian retaliation for themselves.

Former State Department official Jonathan Winer was one of the early architects of the Magnitsky Act, as he notes in a recent op-ed for The Daily Beast:

“When Browder consulted me, he wanted to know what he could do to hold those involved in the case accountable. ... I suggested creating a new law to impose economic and travel sanctions on human-rights violators involved in grand corruption. Browder decided this could secure a measure of justice for Magnitsky. He initiated a campaign that led to the enactment of the Magnitsky Act. Soon other countries enacted their own Magnitsky Acts, including Canada, Estonia, Latvia, Lithuania, and most recently, the United Kingdom.”

Russian authorities are still pursuing a case against Browder. As Winer notes, the Mutual Legal Assistance Treaty allows Russian prosecutors to ask the U.S. Attorney General to arrange for Americans to testify in criminal cases—with one significant exception, as noted by Winer:

“The attorney general can provide no such assistance in a politically motivated case. I know this because I was among those who helped put it there. Back in 1999, when we were negotiating the agreement with Russia, I was the senior State Department official managing U.S.–Russia law-enforcement relations.”

As noted in an article by Diana Johnstone for the Ron Paul Institute: “Winer’s clever treaty is a perfect Catch-22. The treaty doesn’t apply to a case if it is politically motivated, and if it is Russian, it must be politically motivated.”

Khodorkovsky, along with Browder, lobbied heavily for passage of the act. Khodorkovsky did so through his Corbiere Trust, which handles his remaining fortune. It also lobbied for passage of Senate Resolution 322, which provided express support for Khodorkovsky and co-defendant Platon Lebedev. The Corbiere Trust is one of APCO Worldwide’s largest clients. APCO lobbied on behalf of the now-defunct Clinton Global Initiative and was involved, at least tangentially, in the Uranium One transaction, as noted by the Hill:

“APCO was paid $3 million in 2010 and 2011 to work for Rosatom, Russia’s state-owned nuclear company. Rosatom paid APCO to lobby the State Department and other federal agencies on behalf of its Tenex subsidiary, which sought to increase its commercial uranium sales in the United States.”

Johnstone observes that APCO’s president and CEO, Margery Krause, is “a member of Mikhail Khodorkovsky’s son Pavel’s Institute of Modern Russia, devoted to ‘promoting democratic values’—in other words, to building political opposition to Vladimir Putin.”

Of interest is that Khodorkovsky and Browder knew each other from Browder’s business dealings in Russia. According to a New York Times article, Browder and Khodorkovsky had some acrimonious dealings over Yukos, and Browder “was happy when he was arrested.”

The relationship changed in 2010 or 2011 as both men began to lobby for the Magnitsky Act. Their relationship appears to have continued. In November 2016, the two men appeared together to testify on the UK’s relationship with Russia before the House of Commons. Browder continues to bring up Khodorkovsky in interviews. and he specifically noted Khodorkovsky’s story during testimony before the Senate Judiciary Committee.

In some respects, the June 2016 Trump Tower meeting virtually ensured that the Magnitsky Act will remain in force. That one event accomplished more than Browder or Khodorkovsky could have accomplished in years of lobbying. The Trump Tower meeting rendered the Magnitsky Act politically untouchable in the intermediate term. In August 2017, Trump placed additional sanctions on Russia.

In July this year, Putin noted during his joint press conference with Trump that he wanted to interview 11 American citizens and foreign nationals in relation to Browder and the Magnitsky Act. In exchange, Mueller’s special counsel team would be able to interview the 12 Russian intelligence officials they had indicted. Included on Putin’s list were Browder, Michael McFaul, David Kramer, and ... Christopher Steele.

Kramer and McFaul, a former ambassador to Russia, have both been frequently quoted in The Washington Post and The New York Times criticizing Trump’s foreign policy. Kramer, at late Sen. John McCain’s behest, flew to London to meet with Steele. Kramer then hand-delivered the Steele dossier to McCain, who gave a copy to Comey.

At this point, it remains unknown whether Khodorkovsky or Browder have involvement, direct or otherwise, in the production of the Steele dossier. A common link between the participants is Jonathan Winer, who has known Steele for years. Winer lobbied on behalf of Khodorkovsky and the Corbiere Trust. Given Khodorkovsky’s focus on passage of the Magnitsky Act, a link to Browder is a short hop at best.

Winer had direct involvement in the dissemination of the Steele dossier. In September 2016, Winer met with Steele and passed a copy of the dossier along to Victoria Nuland at the U.S. State Department. Winer noted this himself in a Washington Post op-ed:

“In the summer of 2016, Steele told me that he had learned of disturbing information regarding possible ties between Donald Trump, his campaign and senior Russian officials.

“In September 2016, Steele and I met in Washington and discussed the information now known as the ‘dossier.’ Steele’s sources suggested that the Kremlin not only had been behind the hacking of the Democratic National Committee and the Hillary Clinton campaign but also had compromised Trump and developed ties with his associates and campaign.

“I was allowed to review, but not to keep, a copy of these reports to enable me to alert the State Department. I prepared a two-page summary and shared it with Nuland, who indicated that, like me, she felt that the secretary of state [then John Kerry] needed to be made aware of this material.” The level of involvement from Khodorkovsky and Browder is murky at best. But one thing seems fairly clear. The Magnitsky Act, which had a material impact on relations with Russia, has stemmed primarily from the unsubstantiated narratives of two men: Mikhail Khodorkovsky and Bill Browder.

Jeff Carlson is a CFA charterholder. He worked for 20 years as an analyst and portfolio manager in the high-yield bond market. He runs the website TheMarketsWork.com